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Last Updated: Thursday, 7 April 2005, 10:28 GMT 11:28 UK
US car giants in financial crisis
Brian Barron
By Brian Barron
BBC News, Detroit

The increasing popularity of foreign vehicles has been a financial disaster for America's Big Three car companies, and nowhere can this be felt more than in Detroit, known for generations as Motor City.

A sales consultant in Detroit clears snow off a Dodge Durango
Back in 1998 the Detroit companies shared nearly 9bn in profits
Everything about Detroit seems outsize.

The airport terminals are on a palatial scale and a long way apart. The city's suburbs stretch almost forever.

And the freeways, the step-child of the motor car, are full of bulbous home-grown sports utility vehicles - SUVs - that make even a Range Rover seem petite.

As for downtown, it is dominated by the steel and glass towers of the Renaissance Center, soaring above the blocks of ice floating down the Detroit River, with Canada on the opposite bank.

Pride of place in one Renaissance showroom goes to a large, curvaceous, streamlined pick-up truck.

All that is missing is a prospective purchaser, perhaps wearing a mask, a cloak and black tights.

Boom and bust

By chance recently, I test-drove something similar covering a Nascar race meeting in Daytona, Florida.

The success of the sports utility vehicle seemed unstoppable
"Fasten that seat belt tight," said the Chrysler Corporation minder.

"You're about to fly in the world's fastest pick-up."

Quite so, if you need one that can top 154 miles per hour to carry your tool-kit from one job to the next.

Just over 10 years ago, the Big Three emerged from recession and rode to new riches with a variety of SUVs and pick-ups.

For an industry where boom and bust are like fixtures and fittings, the SUV proved the ultimate cash cow.

As recently as 1998 the Detroit companies shared nearly 9 billion in profits.

But now the reckoning.

While they focused on huge gas-guzzling private vehicles, their foreign rivals, most notably Toyota of Japan, have eaten away at their overall market share within the USA.

Massive overheads

Now the luxury end of American car sales are largely dominated by Japanese and European car makers.

A Pontiac G6 is shown outside a General Motors assembly plant
The GM share price tumbled to its lowest level in two years in March
Add to that the dramatic rise in oil prices and signs that the demand for the biggest SUVs may be stalled and you have a crisis.

These days car analysts often talk of the Big Two and a Half because Chrysler is German-owned.

It is doing reasonably well, buoyed by the influx of German engineering know-how.

But the biggest Detroit company, GM, is in deep trouble. Much of it stems from its massive overheads.

In the good old days Detroit offered the most sought-after blue collar jobs in America, signing labour contracts giving the United Auto Workers Union almost de facto veto power over whether or not loss-making factories should be closed.

Today, GM has enormous liabilities from providing healthcare and pensions for hundreds of thousands of workers, their families and the retired.

It is estimated that adds nearly 1100 to the cost of every GM model that comes off the production line.

Recently, Chrysler Corporation slipped free of a similar straitjacket by persuading its workers to agree to share healthcare costs. Now GM and Ford are trying to do the same.

Motor city

Many in the industry believe Toyota will overtake GM as the world's biggest car company.

As the dinosaurs struggle to adapt and survive, the city of Detroit seems moribund.

Over the past 50 years one million people have moved out.

Now the population is only 900,000. And the city's own projections are for another 50,000 to leave within five years.

These days driving through Detroit's inner neighbourhoods prompts nostalgia and melancholy

It is not hard to see why.

The car companies' decline, and their suppliers too, has led to lay-offs and closures.

Companies that could, decamped further south in the US, to states where tax is lower and non-union factories can be set up.

These days driving through Detroit's inner neighbourhoods prompts nostalgia and melancholy.

There are streets of abandoned factories, shops and houses, including once elegant clap-board properties with small groups of drug addicts camped out inside.

Danger point

As the population has dwindled, so has Detroit's tax base pushing the city to the brink of fiscal collapse.

One result is that this summer 36 schools are being closed, with more to come later.

It is a sad place. Leaving the other day, I rode down from the 44th floor of the Renaissance Center.

Beyond the half-way point there was a ghastly clanging sound and the lift dropped like a stone for a few feet before the safety mechanism engaged as I swung between floors.

It took 10 minutes of ringing the alarm to get a response.

Another 20 minutes later, with periodic grinding sounds and much wobbling, my lift was finally lowered so the doors could be opened.

I hope it does not sound glib, but my adventure in the Renaissance Center felt like a metaphor for the decline of a once-proud industrial giant.

Now new ideas are urgently needed.

From Our Own Correspondent was broadcast on Thursday, 7 April, 2005, at 1100 BST on BBC Radio 4. Please check the programme schedules for World Service transmission times.

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