Industry cutting back to grow

Analysts say the verdict is still out on whether automakers can recover.
DETROIT (AP) -- Shrink to grow. That's the message from Detroit, where all three of the traditional domestic auto companies have announced thousands of job cuts in the hopes of turning red ink to black.
But they all know they can't cut their way to profitability. In the end, they have to build more cars and trucks that people want to buy. These days, that means smaller and more fuel efficient vehicles.
"There's no doubt that the easier part of the two prongs of restructuring is cost-cutting," said Efraim Levy, senior industry analyst with Standard & amp; Poor's. "The hard part is getting the vehicles that consumers want."
With Chrysler's announcement Wednesday that it will cut 13,000 jobs and shut down one plant and some assembly lines, all the traditional domestic manufacturers have downsized considerably in the last two years. Ford Motor Co. will cut up to 38,000 blue-collar jobs and another 14,000 salaried positions. General Motors Corp. has trimmed its salaried ranks and about 35,000 production jobs.
GM alone says it has cut about 2,000 from the cost of building each car.
Billions lost
All three lost billions last year and were forced to shrink as expensive gasoline shifted demand from trucks and sport utility vehicles to smaller, more fuel efficient models, sending the Big Three on a scramble to come out with new models to try to recapture buyers who fled to Asian competitors.
The domestic brands' market share dropped from more than 70 percent in the 1980s to 53.7 percent last year, and Toyota likely will unseat Ford as the No. 2 auto seller in the U.S. this year.
With many of their new products already in the market, several industry analysts say the jury is still out on whether the automakers can recover.
"There are some new products that have taken hold and there are others that are questionable," said Tom Libby, J.D. Power and Associates' senior director of industry analysis.
Among the successes he points to is the Pontiac Solstice, a niche car that sits only a short time on dealer lots and has sold roughly 1,000 to 2,000 per month since its introduction in October 2005. The sleek two-seat roadster is priced around 20,000.
"You have a combination of this sexy appeal of a car with this low price," Libby said. "You have to have both, and that proves itself with the Solstice."
GM and the others have to duplicate that success with higher-volume vehicles like Ford's Fusion, the Saturn Aura and Dodge Caliber, Libby said.
Ford sold 142,502 Fusions last year, gradually growing its share of the midsize market to around 7 percent. The midsize Aura, on the market for only six months, is selling between 4,000 and 5,000 per month, while the Caliber small SUV, introduced in February 2006, sold just over 92,000 last year. Demand for it has been so high both in the U.S. and overseas that dealers are complaining about shortages.
Trucks
Early sales of GM's new pickup trucks, the Chevrolet Silverado and GMC Sierra, also have been good, Libby said, although the full model line is just now reaching the showrooms.
All of those are bright spots, Libby says, but they fall far short of Toyota's Camry, the largest-selling car in the U.S. with 417,104 sold.
Chrysler's new Sebring midsize car, introduced in October, got a bit of a slow start and will have a tough go because Chrysler has had few successful entries in the midsize market, Libby said.
"Chrysler does not really have a presence there in the consumers' mind," he said.
The Sebring is a metaphor for Chrysler, Ford and GM as they attempt their comebacks.
"Some of these brands do not have the strength in the marketplace to bring customers in," he said.
Erich Merkle, an industry analyst with the auto consulting company IRN Inc. in Grand Rapids, said the traditional domestic automakers have two challenges: making cars the baby boomers want and attracting the first-time buyers. Right now, they aren't reaching either particularly well, he said.
"They have to be able to successfully market to the baby boomers at higher price points in order to provide them the cash to be able to market to the echo boomers at the lower end of the price spectrum," Merkle said.
Troubled future
Analysts also have said the Detroit-area automakers will have trouble making money in the future because most of their profits in the past came from high-margin trucks and SUVs. Even if they are successful selling cars and car-based crossover vehicles, it might not be enough to reverse the losses because the profit per vehicle on cars is lower.
But Steve Bartoli, vice president of product marketing for DaimlerChrysler AG's Chrysler Group, said the company will make money on cars because now it is building multiple models off the same underpinnings, trimming development and manufacturing costs.
"The flexible manufacturing enables us, with a minimal amount of fixed costs, to generate a significant amount of revenue," he said. "When you minimize the cost, obviously you need less revenue to be profitable."
The company also is growing its overseas business where it previously had little revenue. Last year, Chrysler sold about 200,000 vehicles outside of North America, Bartoli said.
As for the Sebring, Chrysler's entry in the important midsize car market, Bartoli said he's aware that the company must work on its brand image to take on the Camry.
"The fundamentals are there. We just have to start leveraging them. We're not afraid of the battle. We're going to take it on with full energy."
Levy, the Standard and Poor's analyst, said he doesn't see many big-hit products from the domestics just yet. But he's not totally pessimistic about their futures.
"Car companies have traditionally had a history of finding something when their back's against the wall," he said.