The 2004-2006 timeframe likely will be remembered as a pivotal period in the automobile industry, as a host of calamitous trends arose to threaten the industry. While “The Big Three” suffer from common ills in the U.S., automakers elsewhere have established themselves as true, high-quality manufacturers with a growing global customer base.

During the 2004-2006 period, high gasoline prices began a sea change among United States consumers that is finally creating significant demand for fuel-efficient vehicles. Gasoline prices of approximately $2 per gallon started taking a huge bite out of family budgets in 2004, and many middle-class consumers who owned fuel-guzzling SUVs and pickup trucks began to wish they had vehicles that were much less expensive to operate. By 2005-2006, Plunkett Research reports, with gasoline prices in the $3 range, “the party was over for traditional, large SUVs.”

For Ford, the second-largest U.S. automaker after General Motors, sales of SUVs and pickups are down more than 17 percent for the year, or about 250,000 units, which equates to $6 billion in revenue, according to AMR Research. And as sales of heavy SUVs lagged miserably, other automakers such as Chevrolet, Hummer and Cadillac offered large dealer incentives and rebates in an effort to move these massive gas-guzzlers. Ford cancelled production of its Excursion SUV in which some owners reported getting as little as 11 MPG in the city, and GM cancelled production of the huge Hummer H1.

Yet Toyota truck sales are up more than 40 percent for the year, with the world’s second-largest automaker, poised to be No. 1, preparing its new Tundra pickup in 2007, which is predicted to steal even more market value.

U.S. automakers are losing billions on their core automotive operations as they are hit by rising healthcare costs for both active and retired employees. Simultaneously, they are steadily losing market share to foreign competitors. They are making intense demands on their component suppliers for lower prices; these suppliers, in turn, are looking to low-cost production in China. Just last week, Ford announced it will almost double its purchase of China-made parts this year — buying $2.5 billion to $3 billion in auto parts in China — to cut production costs.

“The Big Three” — GM, Ford and Chrysler Group, the American unit of DaimlerChrysler AG — face difficult times at best.

Worries have been growing that Ford could face a cash squeeze before the savings benefits kick in from job cuts, plant closures and other parts of its restructuring plan. Ford, which has been struggling to turn around its business, racked up a $5.8 billion loss for the July-September quarter due to sagging North American sales and huge costs associated with the massive restructuring plan. It was the largest quarterly loss in more than 14 years for Ford, reports Bloomberg News (via The New York Times).

Ford, Chrysler and GM and are under intense competitive pressure from foreign-based firms while enduring high labor costs at home. Ford and GM are both struggling to reengineer all parts of their operations — from design to manufacturing to marketing — in order to cut costs and regain market share.

Chrysler is having major troubles unloading its stock. How do you recover from something like this? Here’s one way to do it:

Chrysler said it would reduce shipments of slow-to-sell vehicles to Chrysler, Jeep and Dodge dealers by 90,000 in the three months ending Sept. 30 and by an additional 45,000 in the last three months of the year. Chrysler, which would not rule out plant closings, buyouts, or other cutbacks, is responding to the same shifts in consumer preference that have forced General Motors Corp. and Ford Motor Co. to shed tens of thousands of workers and close plants.

According to U.S. News & World Report late last month, however, GM appears to be turning itself around:

Americans tend to think of The Big Three domestic automakers — GM, Ford, and Chrysler — in lock step. And, yes, all suffer from common ills: aging infrastructure, outdated technology, over-reliance on big trucks and SUVs, and huge healthcare and “legacy” costs that pump up the expense of every vehicle. But the pace of change varies throughout Detroit, as Ford’s troubles illustrate. Chrysler, the American arm of Germany’s DaimlerChrysler and until recently a success story, posted its own $1.5 billion loss last week. Yet GM, for once, bucked the trend. Overall, it lost $115 million (including special charges), but it also posted record revenues and a tidy operating profit of $529 million.

GM, of course, offered buyouts to its entire unionized workforce earlier this year (resulting in a reduction of 34,000 workers) and is in the process of closing nine factories by 2008, which will reduce capacity by 1 million units. The company has cut costs by $6 billion pre-tax.

Despite the upbeat news for GM, though, the automaker should be wary of celebrating, says U.S. News & World Report. The automaker still faces a series of barriers to sustained profitability. Its passenger car lineup remains weak, it is way behind on crossovers, and the company continues to burn an alarming amount of cash.

Together, the companies lost $7.4 billion in the quarter, according to Forbes. So while The Big Three struggle in varying degrees, Asian car manufacturers are generally enjoying booming success.

South Korean makers Hyundai and Kia have established themselves as true, high-quality manufacturers with a growing global customer base.

The dismal results at American automakers blatantly contrast with the healthy performance among the Japanese. Nissan Motor Co. said late last month that its quarterly profit rose 31 percent. Honda Motor Co. posted a slightly lower profit for the quarter, partly because of hedging, but saw its sales grow in North America and other regions reports The Associated Press (via BusinessWeek).

And Toyota is attacking mercilessly. The Japanese automaker is reaping record profits, pouring billions into new models, and racing toward a once unthinkable milepost: displacing GM as the world’s biggest carmaker. Moreover, Toyota has the capacity to manufacture over 1.5 million vehicles yearly in North America.

Further, while inexpensive cars manufactured in China will soon be on the market in the U.S., automakers from all nations are racing to establish plants and partnerships in China to produce cars both for domestic use and for export. Low labor costs and increasing product quality in China threaten auto plants located in high-cost nations such as the U.S.

In the booming nation of India, vehicle sales are soaring. While motor scooters continue to sell rapidly, a growing middle class is also creating great demand for cars. Local industrial giant Tata hopes to launch a no-frills Indian car at a base price of about US$2,200, reports Plunkett.

As in the U.S., European manufacturers are facing tougher times, too. With the exception of continued positive results at Audi and Porsche, and reasonably strong profits combined with growing market share at BMW, European car companies are generally facing high costs, tough labor laws, daunting government regulations and disappointing model designs for hampered results.

The parts manufacturing business in the U.S. is equally dismal. Delphi Corp, the giant parts supplier that was part of GM until 1999, lost nearly $4.6 billion in 2004 alone and is operating in bankruptcy, for example. In fact, in June an AlixPartners study of 104 automotive suppliers, 22 automakers, 18 heavy-vehicle producers and 32 automotive conglomerates worldwide found that 38 percent of all auto suppliers in North America are in fiscal danger of insolvency within 24 months unless they take extreme measures. Not only relegated to North America, the study says that globally, 24 percent of suppliers face the same fate.

Of course, in the eyes of consumers, design flaws can have as much of an impact on their perceptions of quality as can a defect, said Joe Ivers, executive director of quality and customer satisfaction research for J.D. Power and Associates, regarding J.D. Power and Associates’s latest Initial Quality Survey. “Yet many manufacturers have tended to address quality solely on the plant floor without considering design factors.”

So it goes and so it goes, now the automotive industry is oft embraced by the general public as an object of contempt, really. What can be done? Wrote Manufacturing Engineering editor Brian J. Hogan:

The auto industry should keep plugging away at the job of designing and manufacturing handsome, high-quality, reliable automobiles. It sounds banal, I suppose, but that’s the ticket to the future. Technically sound, well-manufactured, attractive automobiles will find buyers, without discounting or incentives.

Make quality vehicles that are attractive to consumers? There’s a novel idea. Can it be that simple?

Resources

Automoblies and Trucks Overview
Plunkett Research Ltd.

What Ford Needs To Do To Pull Out of Its Tailspin
by Kevin Reale
AMR Research, Oct. 24, 2006

Ford to Nearly Double Purchase of China-Made Parts
Bloomberg News (via NYT), Oct. 27, 2006

DCX: Too Many Trucks: Chrysler to cut production
by Katie Merx
Detroit Free Press, Sept. 20, 2006

While Ford Stalls, GM’s in Gear
by Rick Newman
U.S. News & World Report, Oct. 29, 2006

Detroit, Downsizing
by Jonathan Fahey
Forbes, Oct. 25, 2006

Ford wants to invest in development
by Yuri Kageyama
The Associated Press, Oct. 26, 2006

Bankruptcy Concerns for Auto Suppliers Continue to Increase, According to New AlixPartners Study
AlixPartners, June 14, 2006

Porsche tops quality survey
CNNMoney, June 8, 2006