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Last Updated: Friday, 5 January 2007, 16:07 GMT
Crunch time for US auto industry
By Steve Schifferes
Economics reporter, BBC News, Detroit Motor Show

Chrysler Jeeps being shipped
US car makers are weighed down by their gas-guzzling legacy

A hundred years after the first Motor Show opened in chilly Detroit, the climate has changed and heat is on the city's Big Three car makers.

This year, the unseasonably warm climate has not only made the city's snowploughs redundant: it also works as a live advertisement for the US car makers' chief rivals Toyota and Honda, which are both here to show off their hybrid cars.

With concerns about global warming high on the political agenda, their strategy seems to be working.

Last year, Toyota's sales in the US soared 12.9% while Honda's rose 3.5%, in sharp contrast to Motown's own which saw American drivers deserting in droves.

US ANNUAL CAR SALES*
FORD - 2.9m, down 8%
GM - 4m, down 8.7%
CHRYSLER - 2.4m, down 5%
TOYOTA - 2.5m, up 12.9%

Ford sales fell 8%, GM dropped 8.7% and Chrysler slid 5% in 2006, so this year a further 100,000 Motown jobs are set to be axed.

Challenges ahead

The US automotive giants have been hurt by the fall in demand for larger sports utility vehicles and people carriers, with higher petrol prices driving many buyers to purchase smaller, more fuel efficient cars.

H2 Hummer
The American love affair with SUVs seems to be coming to an end

And this is where the Japanese pose the greatest threat to America's Big Three.

As Motown's responses fill their stands at this year's show, it will soon become obvious that they are not all ready to head down the green lane: Many of their most fuel efficient models are not yet ready for production, and much of their focus is still on big and powerful cars.

Reviving the minivan

Each of the Big Three has a different approach.

DaimlerChrysler's US subsidiary Chrysler, the smallest of the US carmakers, is pinning its hopes on the relaunch of its best-selling Voyager people carrier - or minivan as it is known as in the US - which already accounts for a fifth of its total sales.

"We invented the minivan, and we're going to wow the industry one more time," declares Chrysler chief Tom LaSorda.

Chrysler says it will lose $1.3bn on its North American operations in the past year, and has vowed to cut $1,000 from the cost of each vehicle it makes.

But it has yet to announce full details of its turnaround plan, and has yet to win any concessions from unions in reducing benefits.

Rumours persist that its German parent company, Daimler, would like to sell Chrysler - if it could find a buyer.

Ford at the crossroads

Ford, meanwhile, has decided to discontinue production of its Taurus and Freestar people carriers entirely.

The Ford Edge on show at the recent Detroit Motor Show
Crossovers like the Ford Edge are big this year

Ford is instead banking on the launch of new "crossover utility vehicles", smaller versions of SUVs with more car-like qualities, such as the Edge which it launched last year.

It is also hoping to bring out a new model of its best-selling pick-up trucks, and it has hopes for a saloon version of the Focus, and will showcase its new small concept car.

Ford has a new chief executive, Alan Mulally, the former head of Boeing, who took over in October. His challenge is to steer the company into profitability after announcing a net loss of $7bn during the first nine months of 2006 - the latest available figures.

Mr Mulally says that Ford "is clearly at a turning point". And he says he is thinking of selling both Aston Martin and Jaguar, the company's luxury subsidiaries.

Mr Mulally has raised $25bn in cash to fund Ford's turnaround, pushing ahead with plans first launched under Ford US chief Mark Fields a year ago.

The company plans to cut 50,000 jobs and close down 14 plants in order to save $4bn per year.

But most analysts say it will be several years before Ford's North American operations are profitable again, and that Ford could burn through $17bn of its cash pile by 2009.

The hybrid boom

Toyota is poised to overtake Ford as the second-largest carmaker in the US in 2007 - it is already bigger than Ford globally - and many predict that it will also overtake GM to become the biggest car company in the world.

Camry Hybrid
Toyota will show its latest Camry Hybrid

At Detroit, Toyota plans to build on the success of its popular Prius petrol electric hybrid car, while also unveiling a new hybrid sports car concept, and a new hybrid version of the best-selling Camry. Its high-end subsidiary Lexus also offers a luxury hybrid saloon and SUV.

The company opened a new plant in Texas in 2006 and is reportedly investigating a further opening in 2007. Its market value of more than $200bn is 12 times higher than that of GM, which the market says is worth less than many of its much smaller rivals.

Taking on Toyota

GM has a turnaround plan of its own, revealed last year, which calls for 34,000 job cuts and 12 plant closures to save $9bn on its US operations. It has already sold off its Delphi parts subsidiary and is putting up for sale its GMAC finance unit.

GM chief Rick Wagoner
GM's problems have put chief Rick Wagoner under pressure

It is also the only one of the Big Three who plans to directly challenge Toyota and Honda's dominance of the family saloon market, by launching a new version of the Chevy Malibu to challenge the Camry and Accord.

GM is will be launching several other new models, including the Cadillac CTS and the Saturn Astra, and will be adding to its already has a strong range of crossover utility vehicles such as the Buick Enclave.

But its biggest challenge in 2007 may be in the field of labour relations. GM needs to get more concessions from the giant UAW union if it is to become cost-competitive with Japanese carmakers, and will start negotiations this year for a new four-year contract.

With further restructuring expected in the global car industry, it could be a turbulent as well as a critical year for the US industry.


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