US car industry rusts behind chrome

The deepening financial troubles of General Motors and Ford will likely overshadow the shimmering new car and truck models on display at the Detroit auto show next week, one of the industry's most important annual events.

The North American International Auto Show - beginning on Monday in downtown Motor City - comes as the two US automakers - facing cut-throat competition, high labour-related costs, shrinking market share and excess capacity - are preparing to report their fourth-quarter and full-year financial results.

Analysts expect GM, which has lost nearly US$4 billion ($5.8 billion) through the first three quarters of 2005, to post its fifth straight quarterly loss this month. Cross-town rival Ford is expected to eke out a small quarterly profit, but announce major plant closings and blue-collar layoffs.

"The next 12 months will not only determine the very future of the domestic automobile industry as we know it, but Detroit will become the lightning rod for the most pressing issues facing this country - healthcare costs, pension reform, global competition and its threat to the industrial foundation of America," said Peter DeLorenzo, auto analyst and publisher of Autoextremist.com, a closely-watched industry website.

The mood will be sombre at Ford's stand with Fields and other top executives avoiding questions on the details of the automaker's long-awaited restructuring plan for North America during the show.

Ford chairman and chief executive Bill Ford has said the turnaround plan, expected to be revealed on January 23, would include "significant plant closings" and job losses.

Industry executives warned last week that higher interest rates and continuing volatility in energy prices could restrict US auto demand this year.

GM and Ford each lost US share to foreign rivals led by Japan's Toyota in 2005.

Asian brands won a 36.5 per cent share of the US market last year, a 1.9 percentage point increase compared with the same period in 2004. US automakers, on the other hand, collectively lost 1.7 points of share at 57 per cent, according to industry tracking firm Autodata.

With Asian carmakers ramping up output amid a flat to lower US sales outlook, more share erosion seems inevitable for GM and Ford, analysts said.

A KPMG LLP survey shows most auto industry executives believe US automakers' share of the global market will decline in the next five years.

GM is now looking at the possibility of losing its "world's largest automaker" crown for the first time in more than 70 years to Toyota, which unseated Ford for the No 2 spot in 2003. Also, Toyota appears poised to overtake DaimlerChrysler's Chrysler in the United States this year after gaining 1.1 points of market share in 2005.

Toyota said it planned to make a record 9.06 million cars globally in 2006, an increase of 10 per cent at a time when GM is shrinking capacity by slashing 30,000 jobs and closing 12 facilities in North America.

One bright spot for GM is the launch of the GMT-900 series, a new line of redesigned SUVs and trucks.

"With the upcoming introduction of new vehicles based on the GMT 900 platform, GM should regain lost share in the remarkably profitable large truck and large SUV segments," said Jesse Toprak, executive director of industry analysis for Edmunds.com.

But Argus Research analyst Kevin Tynan was sceptical, given that high fuel prices prompted many consumers to turn away from mid-size and large SUVs, and purchase more fuel-efficient cars in 2005.

" '06 is really a year where Ford and GM don't have the products to satisfy the demand in the market if the shift away from trucks continues," he said.

The increasingly volatile and difficult environment in Detroit as labour and management tensions come to a head could also grab the media spotlight at this year's show.

Dissident United Auto Workers' groups from Delphi, angry with the bankrupt parts maker's proposal for deep cuts in wages and benefits, are threatening to set up picket lines at the show.

- REUTERS