Page last updated at 08:29 GMT, Sunday, 11 January 2009

Detroit auto show is all about survival

By Jorn Madslien
Business reporter, BBC News

General Motors boss Rick Wagoner: 'It is a very weak time for the industry'

The snowstorm that is battering Detroit seems a fitting parallel to the economic blizzard that has swept through the US car industry in the past year.

While Motor City's "Big Three" carmakers - General Motors (GM), Ford and Chrysler - are fighting for their very survival, many of their industry colleagues are turning their back on their annual showcase, the Detroit auto show.

Not only are the European luxury carmakers Porsche, Ferrari, Land Rover and Rolls-Royce staying away this year.

Japanese carmakers Nissan, Infiniti, Mitsubishi and Suzuki have also withdrawn from the show, and Honda has cancelled its press conference.

Even home-grown party animal Chrysler, which has wowed the crowds in recent years with fake blizzards and downtown cattle herding, is scaling back.

We think that the economy is going to continue to contract, at least in the first two quarters
Alan Mulally, chief executive, Ford

Chrysler's traditional Firehouse party, across the road from the Cobo conference centre, has been called off. In previous years executives have manned the bar, serving free drinks to journalists.

"These are very difficult times for Detroit," observes Tom Purves, chief executive of Rolls-Royce Motor Cars and former head of BMW in the US, from afar.

"Everyone at those companies must look very carefully at how they spend their marketing budgets."

Automotive future

For visiting journalists the cut-backs on the the glitz and the gimmicks, the pampering and the parties, is bad enough.

Retired member of the United Auto Workers' union
Further job losses are causing despair for the industry's workers

But it gets worse.

The carmakers have also scaled back on new model launches, of which there are precious few at the Detroit show.

The organisers, eager to talk up the show, insist there are about 20 new launches.

But many of those are merely derivatives of existing models, such as the latest versions of Ford's Mustang, Bentley's Continental GTC and Maserati's Quattroporte.

In short, do not expect this show to be about the cars. Instead, it will be about survival strategies, after Detroit was struck by disaster in 2008.

As the US slid further into an ever-deepening recession, car and light truck sales fell 18% during the last year.

"The current economic climate is having an unprecedented impact on the automotive industry," observes Mike Steventon, automotive partner at KPMG, a consultancy.

The slump brought the "Big Three" to their knees, begging bowls in hand, as they turned to the government for help.

The Bush-administration responded with a multi-billion dollar bail-out package to help them survive until President Elect Barrack Obama's arrival in the White House.

So GM and Chrysler are now living on borrowed money, so far having received $4bn each in emergency loans, while Ford has secured a $9bn credit line in anticipation of worse times ahead.

"We think that the economy is going to continue to contract, at least in the first two quarters," says Ford's chief executive, Alan Mulally.

Desperate people

And while the situation is bad across the US, it is even worse in Michigan.

GM and Chrysler cars in Detroit
GM and Chrysler are living on borrowed money and borrowed time

In the state's main city, Detroit, cash shortages mean 13 public recreation centres that were shut down in 2005 may never reopen. Elementary school Academy of Americas is asking parents to donate toilet paper and light bulbs.

Michigan State has long suffered a one-state recession that has pushed its unemployment rate into double-digit figures, well above the 7.2% US average.

For five years running, the state has had the highest unemployment rate in the US.

Some 520,000 jobs have been lost since 2000 and this year a further 108,000 jobs are set to disappear with ongoing losses in 2010, according to a forecast by the University of Michigan.

And if the bankruptcy-threatened carmakers fail to pull through, as many as three million US jobs could vanish in a year, according to the independent Center for Automotive Research.

In some ways, the work to rescue Detroit's auto industry has only just begun. The carmakers are currently in talks with the United Auto Workers about the changes that are required, and the union is in no position to resist.

Any strike action would render the government loans void and thus lead to the collapse of the carmakers.

In spite of all this, many Detroit residents are likely to flock to the auto show, one of the highlights of Detroit's social calendar.

But they will find little comfort in the missing exhibits and pessimistic forecasts about the car industry's future.

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