---

DETROIT -- The automotive industry is expected to go through a series of changes over the next few years. Sean McAlinden, Ph.D. is the Chief Economist and Vice President of Research for the Center for Automotive Research (CAR) in Ann Arbor. He discussed the road that lies ahead for automakers in the U.S.

McAlinden was the first speaker at the seminar. He spoke about the economics behind the auto industry. His first point was about General Motors. GM has cut costs and is saving $2,500 per unit. They still have to cut $2,000 per unit to become profitable again. Ford is on the same track but they are 10 to 30 months behind GM.

The goal is "Trying to rebuild three companies by the end of the decade," McAlinden said. "No longer a Big three market."

He said U.S. automakers need to start making money by selling passenger cars. Trucks are the only segment that is profitable for automakers such as Ford, GM and Chrysler. Ford is trying to make a comeback in the car division.

McAlinden confirmed that the auto industry is still very important to America. One out of every 10 jobs in the U.S. is somehow related to the automobile. He said 78% of the manufacturing plans in the country are being utilized and 22% of plants are considered to be idled. In 1999, there were 1,128,400 manufacturing jobs. By 2006, there was only 903,100 jobs. The state of Michigan has lost 105,000 jobs, a 33.6% decline.

While the U.S. is loosing automotive jobs, they are being created in other parts of the world. In Asia, the number of auto-related jobs have increased from 30% to 37%. In China, they are producing 6 million vehicles per year.

In 2005, GM was #1 for world sales with 12.7% of the global market share. Toyota finished second with 12.3% of the market share. Ford finished third with 11.3% of the global market share. Many experts believe that Toyota could surpass GM as the world's #1 automaker in 2007. GM earned more than Toyota only one time, in 1999. Over the last six years, Toyota has earned more.

"This is a no growth market. If the 2007 GDP is below 2.5%, sales will fall. Fewer buyers in the market. Baby boomers not visiting dealerships," McAlinden said. "Generation X too small. Generation Y not in market yet."

Truck sales took the biggest hit in recent years. For the Big three automakers (GM, Ford and Chrysler), sales of light trucks are down by 8.2%. For imported cars, sales of light trucks are up by 8%. Sales of Japanese trucks are up by 3.3%.

What is expected to happen to the Big three? "The U.S. is a Big six or seven market. The Big three market is dead. Detroit Big three market share will fall below 50% by 2011. Internationals will be up 54.8% by 2011. The crossover point is in 2007."

There are many reasons for the decline of the Detroit Big three. First, the automakers have placed too many of a reliance on car sales and employee sales. Huge legacy costs (such as retirees, health care and labor) are hurting the automakers. Ford, GM and Chrysler need to make $5,500 per unit to catch up with Toyota and Honda's profit margin.

The truck boom is ending. Sales of trucks made U.S. automakers very profitable in the 1990's. Higher gas prices have changed the minds of consumers. They are purchasing smaller cars and Crossovers (CUVs). As the gasoline prices go up, Big three market share goes down. Sales of CUVs is up by 8.5%. They will encompass 25% of all sales by 2011. Just one year later, SUVs are expected to disappear completely from the market.

"We need something to compete with the Honda Accord and make money," McAlinden said. "It has to be built here to make a profit."

Hybrid sales are up. McAlinden sees them as "a stepping stone to flex fuel and fuel cells." Just the battery alone costs between $1,500 and $2,200. When you take into account all the parts that are needed to add an electric engine, a hybrid car will cost between $3,000 and $5,000 more. It takes the consumer eight years to pay back that money.

Over the last decade, dozens of suppliers went bankrupt. Of those, Delphi in September 2005 and Dana in March 2006. The prices of new cars and trucks have dropped by 4%. Meanwhile, the cost of parts have gone up by 1.3%. Steel, aluminum and plastic have all become more expensive. Foreign auto parts companies have begun opening shops in the U.S.

U.S. automakers have offered record rebates to it's customers for the last four years. This has hurt the automakers themselves. GM earned the least amount of revenue out of all the automakers competing here. Kia made more money on car sales than GM.

At Toyota, the story is completely different. The automaker is planning to increase U.S. production from 1.6 million to 2.4 million vehicles. Meanwhile, U.S. automakers have closed 59 of their manufacturing plants.

GM and Ford are in the middle of restructuring efforts. On January 2nd, 14,000 workers left General Motors and took the buyout offer. Of the Big three automakers, GM pays the highest health costs per vehicle. On an average car, GM pays $897 for retirees; Ford pays $593 per vehicle and Chrysler pays $370 per vehicle.

In 2006, GM and Delphi had 129,000 employees. By 2009, they are expected to have only 80,000 workers. Many automotive jobs have moved down south. The Northern section of the U.S. has lost 20% of automotive jobs. At the same time, the South has seen an increase of 43% more automotive jobs.

There will be an important Union bargaining conference later this year. Legacy costs will be one of the major issues on the table. They will ask for more federal assistance for retirees. Funds have come from Washington to pay for more research and development.

Don't Forget, AmericaJR.com is the ONLY web site in the World with FREE Tickets to the 2007 Detroit Auto Show. Please register now to win! Another exclusive from AmericaJR.com, Detroit's #1 Website.

 

PHOTO BY JASON RZUCIDLO / AMERICAJR.com

Sean McAlinden, Ph.D. speaks to reporters on the eve of the 2007 NAIAS Press Preview.