Detroit's Third Q: Not So Easy as 1-2-3 for Big Three
January 24, 2007

The scores are in. Detroit's Big Three has reported third-quarter earnings. If one were to sum up those results into a movie title, it might be something called The Somewhat Good, the Bad and the Really, Really Ugly.

The carmakers' scores with three-quarters of this year's game over indicate how the year will end up for each company and lay out the challenges for the next year.

First, the game recap:

• General Motors — A good, albeit qualified, performance. GM still lost money — $115 million. But the loss was significantly smaller than the $1.7 billion the automaker lost in the same year-ago quarter. GM's results topped analysts' predictions, and its turnaround, although fragile, appears to be taking hold.
• Chrysler — Bad. Chrysler executives began hinting over the last couple months that storm clouds had formed over Chrysler's previous rosy picture. Chrysler lost $1.5 billion in the quarter, pretty much ensuring a loss for the full year.
• Ford — Really, really ugly. Ford lost $5.8 billion for its biggest loss in 14 years. It is predicting an even bigger loss in the fourth quarter. In fact, Ford isn't expecting a turnaround until 2008.

So what's the outlook for next year and what are the must-dos for each company?

GM has already done a lot of the grunt work that Chrysler and Ford have yet to do. GM has closed or announced the upcoming closing of factories, eliminated 35,000 hourly jobs through buyouts, negotiated an agreement with the UAW to shift more health care costs to workers and retirees and cut costs by $6 billion this year.

GM's top three priorities for 2007 are this:

1. GM must sell the hell out of its new full-size pickup trucks, the Chevrolet Silverado and GMC Sierra, and push the redesigned, Texas-built Tundra back to the Mexican border. GM must sell the trucks on their product merit and without expensive incentives that cut into the gigantic profits that pickup trucks bring.
2. GM must sell the heck out of its new and promising line of crossover vehicles — the Buick Enclave, the GMC Acadia and the Saturn Outlook. The crossover segment is the hottest, fastest-growing segment, and it is critical for an automaker to sell large volumes and share in that sandbox.
3. On the financial side of the ledger, GM needs to keep cutting costs — its projection is $9 billion in 2007 and beyond. It needs to finalize a deal with bankrupt supplier Delphi, formerly a part of GM, so it knows the precise amount of its financial responsibility. It must reduce the cash it is consuming. At the same time, GM must keep the design studios and engineering centers turning out new vehicles that consumers really want to buy.

Most of all, GM cannot get complacent.

Chrysler, to have any hope of a respectable 2007, needs to get to work immediately on a number of items:

1. The company has already said it is drastically cutting production through year's end. It must be extremely vigilant in 2007 to keep dealer inventories in line with consumer demand so as not to find itself in a bloated situation again and to steer clear of expensive incentive programs.
2. Chrysler needs to cut costs. It needs to start by making a deal with the UAW that shifts health-care costs to employees and retirees, similar to the arrangement negotiated by GM and Ford (but previously refused by the union when Chrysler was healthy).
3. Chrysler has to move faster on shifting the preponderance of its product line from trucks and large sport-utilities to small vehicles — cars and crossovers — with small engines. It needs hits in those categories with the Chrysler Sebring, Dodge Nitro and Caliber, and the Jeep Compass and Patriot. And its revamped minivans, being unveiled early in the year, must be a hit, since they are Chrysler's bread and butter. Further, Chrysler needs to hustle and find a small car to fill the gaping hole at the bottom of its product line, a vehicle beneath the Caliber to compete with the likes of the Honda Fit and Nissan Versa.

Ford and its new chief, Alan Mulally, recruited from Boeing, have a lot of work to do. It's hard to know where to begin.

1. Ford needs to reconsider everything. It needs to slash and burn every possible cost. It needs to examine how work gets done, starting with a demolition of its ultrabureaucratic walls. Ford, more than the others, wastes incredible time and energy on junk that just doesn't matter.
2. Company management needs to kick butt and end the ridiculous infighting inside its design studios, which need to quickly turn out some awesome designs for vehicles that people desire. Ford needs to develop a clear plan with specific targets and get its now confused troops marching — and marching in the same direction.
3. Ford needs to fill what seems like a nearly empty pipeline of future product. It also needs to patch the gaping sales hole left by the venerable Ford Taurus. To that end, the Ford Edge must be a sales star. Ford needs to quickly develop some desirable small cars — a minimal face-lift on the Focus, in a segment that is booming, isn't enough. It needs to get Lincoln on track.

The challenges for the Big Three are formidable, and, by no means, as easy as 1-2-3.

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