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Detroit’s comeback is stalled midway by rising inflation

“Forget about the business outlook, be on the outlook for business.” This would count as one of the most famous one liners by the famous self improvement expert Paul J. Myers, in the course of his highly illustrious career. And this would also be the ‘straight from the gut’ agenda spelled out by the boards of car makers in the US to their sales departments, as ‘business’ is simply not what it used to be. The month of July overshadowed a strong second quarter performance by major players in light vehicle sales, as they struggled to even match, leave alone better, their performance in July, 2006.

Even the seemingly immortal, immovable Japanese players (except for Nissan) discovered they were movable. Apart from the 19.1% & 22.3% decline recorded by Ford & GM respectively, Nippon’s Toyota & Honda also sold 7.4% & 7% less cars y-o-y. But the larger fear is that this would be a brutal blow to US automakers, who have just begun to show signs of recovery. After some painful restructuring, both Ford ($750 million) & GM ($891 million) recorded unexpected profits in the second quarter. Talking on Ford’s new found buoyancy, Blue Oval’s Becky Sanch told B&E, “(Ford’s profits) can be attributed to lower input costs, higher sales & the depreciated dollar...” But would market conditions bring their efforts to naught?

Besides the housing slump & alarming gasoline prices, the auto makers face a more empowered American consumer. States Christian Breitstrecher of Sal Oppenheim, “The big three continue to lose money in the US as they don’t make cars that sell, besides they have union problems. The Japanese are not losing money & are gaining market share fast.” In these tough times, Toyota, which was once almost anonymous in pick-ups sold a respectable 95,150 units in July 2007, just 400 less than last year. Meanwhile, GM & Ford recorded a whopping 19.8% & 11% decline, respectively. And other Asian makers like Nissan & Hyundai have also made inroads on Detroit’s market share.

One can see that the Big Three are getting hit the hardest in an adverse environment. Their firefighting also continues with failing brands, employee benefit costs & competitive pressures. This only shows that the profitable second quarter hardly means the end of their rough patch. Business at any cost is the only means to sustain, a view Myers would vehemently endorse!

Edit bureau : Karan Mehrishi.

For Complete IIPM Article, Click on IIPM Article

Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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