Car Makers Scramble to Overcome Industry Ills
MADELEINE BRAND, host:
For people who make a living watching the auto business, yesterday's announcement by GM was hardly unexpected. GM's share of the US auto market has been shrinking for years. Analysts say that's the heart of the problem. Joining us from Detroit is Csaba Csere. He's the editor in chief of the magazine Car and Driver and a frequent contributor to NPR's "All Things Considered."
Welcome to the program.
CSABA CSERE (NPR Contributor; Editor In Chief, Car and Driver Magazine): Good to be here.
BRAND: So how surprised were you by the cuts GM announced?
CSERE: Well, not very surprised at all. You know, GM's having a very bad year. Market share has continued to slide. And no matter what the company does, it hasn't really worked very well. You know, last summer there was a lot of talk about the successful employee discount program that GM had enacted in June. It sold an awful lot of cars and trucks. But the third quarter showed a loss of $1.6 billion, so they sold a lot of those vehicles at a loss. Ultimately the company's got to take action to stop that.
BRAND: And so what other companies that are doing well--what are they doing differently--Chrysler, Toyota, Honda?
CSERE: You know, Chrysler has brought out a line of products that are, in part, of using some Mercedes components because Chrysler is now owned by Mercedes. And they have a full-size car called the Chrysler 300 and a lot of variations of that product that have been extremely successful because they look good, they drive well, they have lots of room and they're very, very attractively priced. GM has had difficulty doing that type of blockbuster product.
BRAND: Something like a Toyota Prius, for example.
CSERE: Well, a Prius, you know--it's a relatively small-volume car, but, absolutely right, it has a huge amount of impact in the marketplace. It reflects well on Toyota across the board. GM needs a number of vehicles like that. They need to turn around the product perception because that's ultimately at the root of this problem.
BRAND: But isn't there another big problem with the unions themselves and all the benefits that the workers receive? It's enormously costly for the company.
CSERE: Well, that's right. And, in fact, these rounds of plant closings, they're not going to have that much immediate effect at GM because several of the plants aren't closing until 2008, and the vast majority of that 30,000 job loss will be natural attrition. And even the workers that are laid off, like the person you interviewed, they go into something called a GM jobs bank, where they continue to draw something like 90 percent of their salary until they get rehired by GM or perhaps hit retirement age. So there's a cost savings to these plant closings, but it isn't as big a cost savings as you might expect, and that's because of the union contracts.
BRAND: GM is the world's largest automaker. So what does this say about the malaise of American automakers?
CSERE: American automakers at this point have real trouble competing on the car side of the business. All of the American automakers got a reprieve in the '90s when the market shifted towards pickups and SUVs because the American carmakers had these vehicles already, and they were ideally positioned to take advantage of this change. And I think all of the carmakers took their eye off the ball on cars a little bit because it was so easy to make money in trucks.
And now a couple of things have happened. The rest of the world has looked at the truck market and the good money and good profits to be made there, and they've jumped in. You have everyone from Lexus to Porsche building SUVs today, and the easy money is gone. And, also, you know, fuel prices have gone up; they're starting to relax a little bit now. But the fact is you can't rely on these SUVs and pickups to make a lot of money anymore. You've got to make money on every product including cars. And in the car area, the domestics are definitely having trouble competing with the imports.
BRAND: All these aging American industries--automakers, steel, etc.--are saddled with these enormous employee costs, pensions and health-care costs, mainly for their retirees. So what is it going to take in the grand scheme, maybe action in Washington, to help out these industries?
CSERE: Well, it might require something like that because in the case of GM, it is estimated that there's about a $1,500 to $1,800 cost per vehicle sold to take care of retirees and health care, and it's a huge amount of money. If GM didn't have that expense, it would probably be profitable this year. So something needs to be done in this regard, but the companies can't be totally absolved from this. The companies that don't lose market share to a huge degree have much less of a legacy cost problem like this. That's where part of it goes right back to the company. If you do well, that problem is much smaller and probably manageable.
BRAND: Csaba Csere is editor in chief of Car and Driver.
Thank you very much for joining us.
CSERE: My pleasure.
BRAND: Stay with us on DAY TO DAY from NPR News.