STATE OF THE UNION:

Detroit Flails in Latest Effort to Reinvent Itself (MICHELINE MAYNARD, 9/16/06, NY Times)

With all of the auto companies here putting themselves on the chopping block, the upheaval shows that Detroit’s basic business strategy — built on the assumption that what has long been thought of as the Big Three would make money simply by dominating the mass market with a full range of vehicles — is irrevocably broken, said James P. Womack, who has written extensively about the auto industry.

“All the old rules of the game are gone,” said Mr. Womack, co-founder of the Lean Enterprise Institute. And, he said, the challenge is now to play by the new rules, as dictated by foreign competitors. “We’re now in the reinvention phase,” he added.

That includes more cuts that will continue at least through the end of the decade. Detroit companies will be focused on closing plants, eliminating blue- and white-collar jobs, and cutting more deeply into their operations to reduce costs. Moreover, the automakers remain liable for billions of dollars in health care costs, both for their active and retired workers.

At G.M., those costs add up to $5.2 billion a year, or the equivalent of $1,440 a car. But for all their efforts to lose excess weight, the biggest challenge facing Detroit’s car companies is convincing skeptical American buyers that their vehicles, developed amid this chaos, are as attractive as those from their aggressive rivals. Thus far, they have been failing, reflected in their falling market share in recent years.

Adding to Detroit’s woes, its Asian competitors are investing billions of dollars more in American factories and hiring thousands more American workers.

At this point, the companies exist to fund the benefits, not to make cars.

Posted by Orrin Judd at September 16, 2006 8:34 AM