There was a time in the not so distant past when the Big Three U.S. car makers had an iron grip on the North American market. Year in and year out, General Motors Corp., Ford Motor Co. and a then independent Chrysler Corp. chalked up huge sales and often large profits despite rising costs, declining quality and a steady stream of mediocre products.
Their days of domination were doomed once import barriers started coming down and more efficient Japanese car makers constructed manufacturing plants in the United States and Canada. Today, despite enormous investments in new technology and products, unceasing cost-cutting and slowly improving quality, the Big Three continue to lose market share in both countries. The question is no longer whether they can regain their old glory but whether they will survive in anything resembling their current form.
An analysis by Globe and Mail automotive reporter Greg Keenan in Saturday's Report on Business shows that the U.S.-based car makers' share of vehicle sales has eroded steadily over the past two years despite lower prices than their European and Asian competitors and unprecedented customer incentive programs, including interest-free loans, cash and even free golf clubs.
Detroit's much-maligned products are improving too, but not in the public's perception. The latest sales figures show that a single Japanese car, the Honda Civic compact, found more Canadian buyers last month than Chrysler or Ford did for all their passenger cars. Besides trailing Toyota and Honda in sales of passenger cars, the Chrysler unit of German-owned DaimlerChrysler sold fewer of them than the likes of Hyundai, Mazda, Volkswagen and Nissan.
Faced with such fierce competition, a slowdown in sales and continued huge spending on consumer incentives, the Big Three are being forced to slash costs drastically and reduce production at a time when Toyota Motor Corp., the biggest of their Japanese rivals, is boosting North American output.
Dieter Zetsche, chief executive of Chrysler, regarded as the most vulnerable of the U.S. makers, set out the problem in blunt terms this week: "Global competition, an oversaturated market and heavy incentive spending put tremendous pressure on margins. If the market is reducing your top line, you've got to work harder to recover that money from your cost base."
There is no doubt that the Big Three face a cascade of problems, including a higher cost structure than anything faced by their competitors. But it is too early to write them off as corporate dinosaurs facing extinction because they are unable or unwilling to make the dramatic changes necessary to survive and prosper in a vastly different competitive landscape.
Ford still intends to invest more than $1-billion to create a flexible manufacturing operation in Oakville, Ont., to build new minivan, sport utility and car models. GM is introducing 60 models in the next three years and Chrysler is coming out with nine next year alone.
The key is to be able to deliver the new vehicles at lower cost and higher quality and to stand out amid the market clutter. The quality gap between the Detroit makers and Toyota and Honda is narrowing -- GM's Oshawa plant has won accolades as a model of its kind -- but it remains too wide, at least in the perception of consumers. And that's where it matters.
The good news for Ontario, whose industrial economy is so heavily tied to the fortunes of the Big Three, is that while they continue slashing labour and other costs, they remain committed to manufacturing as close to their main markets as possible.
The Japanese players are doing the same, investing more in their Canadian plants and adding workers to meet the growing demand for their products. Toyota, for instance, now makes its pricey Lexus SUV at Cambridge, Ont., the first time it has moved production of a luxury model outside Japan.
And all those Honda Civics Canadians purchased last month were made in Canada, too.
That bodes well for the future of the industry in this country, even if the Big Three are unable to reverse their decline.
