WORTH MORE DEAD THAN ALIVE:

Detroit's New Crisis Could Be Its Worst (DANNY HAKIM, 3/27/05, NY Times)

Once again, Detroit has resumed its long slide to automotive oblivion, and everyone's getting his two cents in about how to stop the bleeding. One suggestion: Make cars and trucks that people actually want, as opposed to ones that they'll tolerate in their driveway because of a $5,000 rebate or zero percent financing. A century ago the landscape was littered with American automakers. At this point, we're down to two domestic automakers, or three, depending how you count. Since Chrysler became a division of the German automaker DaimlerChrysler in 1998, people in Detroit sometimes call the Big Three the Big Two-and-a-Half.

Though Chrysler has shown recent signs of revival, General Motors and Ford are rapidly losing customers at home and their debt is rated one notch above junk by Standard & Poor's. That's bad news for two of the nation's biggest corporate borrowers, because a further downgrade could cost billions of dollars. G.M. is in particularly bad shape. Most believe a significant overhaul is required, including possibly sending another brand like Pontiac or Buick to join Oldsmobile on the chopping block.

Crises visit at least one Detroit automaker at least once a decade. But this is a different time: The silver bullets have run out. Previously, someone or something came to the rescue. In the 1980's, Chrysler fell back on the government for a bailout and then helped itself by inventing the minivan. In the 1990's, the Big Three rode the sport utility vehicle to the mainstream, and the big rigs helped them skate past lagging reputations and terminally tacky design.

But there aren't any new magic cars or trucks in the works. And with the Japanese capturing broad swaths of the S.U.V. market and even taking on Detroit's hegemony of pickup trucks, the domestics are hurting in an era when Washington looks increasingly unwilling to backstop American industry.

Detroit's dependence on trucks also has some analysts worried.

"Demand for S.U.V.'s has evidently stalled," said Standard & Poor's in a recent report. G.M. is rushing its next generation of big S.U.V.'s like the Chevrolet Suburban into production by year's end, but with increased competition and volatile gas prices, "it is questionable whether these will generate the profit margins" of the past, the report said.

Worse, there used to be just the Japanese and the Europeans to worry about. Now a vigorous Korean competitor, Hyundai, and a Chinese company, Chery, promises to bring the first ultracheap Chinese cars to the United States in two years. Worse still, soaring healthcare costs are a severe competitive disadvantage for American companies with hundreds of thousands of retirees. G.M. spends nearly $2,000 for each car or truck it produces in the United States on health care and pension benefits, more than enough to equip each car with free leather seats.

Falling to Junk (New York Sun, March 22, 2005)

It's hard to believe that the bond rating of General Motors may soon fall to junk, but it's true. Last week, GM announced an expected loss of $850 million, about $1.50 a share, for the first three months of 2005. The company slashed its profit forecast by $2 billion for the year. [...]

Over the decades, union leaders have won such generous pension and healthcare benefits for GM employees that today GM is the world's largest private consumer of health care, covering the medical costs of more than 1 million people. Health care represents more than $1,000 worth of cost, on average, in every vehicle General Motors produces, its chairman, Richard Wagoner, has said.

GM spends more on health care than on steel. The health-care costs - about $5.5 billion a year and growing - are fixed. GM's unfunded health-care obligations amount to $57 billion. GM also holds America's largest private pension obligation. The company estimates its total future American pension costs at $87 billion.

The company's total market valuation stood last week at $16.39 billion. General Motors was once the leading car manufacturer in the world. Today, it's a pension fund and a health maintenance organization with a relatively small car-making operation on the side.

Ford and GM are surviving on mere sentiment and markets aren't sentimental in the long term.

Posted by Orrin Judd at March 29, 2005 8:36 PM