What can US automakers do to turn it around?

[herrmag]

Well, I'm going to avoid the politics in this thread, and go back to the idea of the thread. Simply, they need to make cheap and reliable cars. Forget mastering the art of a heavy-duty truck (well, don't forget it, but don't make it your primary focus), and develop more financially feasible automobiles like Honda and Toyota. Corollas and Civics last forever.

I'll give Pontiac credit. I got an "economy" rental car while in Mississippi, and it was a Pontiac G6. It's the size and weight of a civic, but has a freaking 6-cylinder in it standard. That little thing FLIES! And, I believe you can get one for just under 16,000 bucks. They have the right idea.

[chomerics]

And yet look how they have come back. But if we'd have done things your way, another American company would have become history.

Way to look out for your fellow Americans :doh:

How can you sit there with a straight face and say that, yet in the same breath say unions are are the problem?

Do you NOT see the glaring hypocrisy in your argument? You are advocating socalism in one instance but not another, make up your damn mind!!!

[mjah]

Having seen Taguchi's talks in person and recognized that his act is 50% smoke and mirrors, I can assure you that there are much greater differences at play between American and Japanese automakers than just Taguchi.

But the basic point is correct. There are fundamental differences between the two countries' auto giants that lead to visible differences in quality between their products.

One of the major problems is the sheer size and history of conflict that you find within American automakers. These folks make inter-functional fighting an integral part of their day, because that's what they learned as they came up the ranks. The final product is less important than the reputation of my functional group.

First of all, trying to get them to change that mentality is like asking a hungry snake to play nicely with a mouse. You can't reasonably ask a snake to no longer be a snake. It's irrational.

Secondly, if Ford and GM were small companies, you could conceivably go in there with a team of maybe 20 really smart, well-trained people and get them to all come around at the same time. You could watch everything and hammer down all the metaphorical nails that were really sticking up badly. You could get them to fundamentally change in a meaningful way due to some motivator other than a simple bottom line, at least temporarily.

But in companies of Ford's and GM's size, that's just impossible. All you can do with 20 really good people -- a very optimistic number -- is effect change in one group working on one vehicle, and make them a good example for others. But then the design cycle ends, the group gets broken up, and all the people are scattered to the corporate winds, with some retiring, others resigning, a few getting fired and the rest spreading out all over the company. The critical mass is lost, and you start over with a company that is perhaps 1% smarter than they were three years ago.

There just aren't enough cat herders to corral all the cats.

Starting at the top doesn't help, either. The chain is too broad and deep for the dictator approach to systematically effect change at the designer, engineer or line worker level. Every 7 to 10 years, some strong-man type leader takes the reins at either Ford or GM and you hear about how they've "turned the company around" with a focus on improved quality that goes all the way down the chain to the guy who cleans the bathrooms in the maintenance shed. Then the articles quietly disappear, and the cars continue to look like crap next to Japanese equivalents. Rinse, wait 7 years, and repeat. It doesn't work.

Ford and GM are meta-organisms bigger than any humans who try to control them. They have outgrown whatever scant control mechanisms they ever had, and nobody wants to undertake the Quixotic task of trying to change that. How would you even start? The companies operate by the collective personality of their employees, who in most cases have been steeped in the culture for years. It's a vicious cycle so strong that nobody can break it. And I'm not anti-union, but the unions peg their existence on making sure the cycle continues. It can't and won't be changed, unless it gets so bad that everyone literally has the choice between a weak-union GM and no GM. Even then, the unions will be back as soon as GM gets back on its feet and the unsolvable problems will start again.

Toyota and Hyundai may be exactly the same beast, but with a different nature. The cultural marketplaces driving their meta-behaviors are more conducive to cooperation and focusing outward instead of inward. They still have conflict, but it's not pervasive enough to have such a negative result on the way their cars look, feel and run.

Frankly, I think the Asian corporate organizations are just more culturally suited to producing reasonably complex mass-produced consumer systems. Cooperation under complex risk/reward scenarios is not the American way.

[zoony]

Absolutely, it is how the free market works. If you build an inferior product, then why allow it to continue, the free market will take care of company one way or another. It's funny how socialistic you are Sarge, yet you fail to see it.

The problem isn't "high price of labor", because the forign car companies are paying the same thing for their cars to be manufactured over here. I do believe their plants are unionized, as many are side by side with Americans.

Guy in Tennesse working for Denzo or Nissan makes $12 per hour.

Same guy in Detroit working for Ford or GM is making $100,000 / year.

No, the Japanese do not use unions.

But I interrupted you... you were telling us about free markets and level playing fields. By all means continue...

.....

[Sarge]

How can you sit there with a straight face and say that, yet in the same breath say unions are are the problem?

Do you NOT see the glaring hypocrisy in your argument? You are advocating socalism in one instance but not another, make up your damn mind!!!

Unions are part of the problem. I think we all know that.

But I'm all for looking out for America first. What other industry do you want ot shutter it's doors in this country? The way we're going we won't make a damn thing in the future, only consume.

So with your thinking, you have no problems with our airlines going out of business either, right? Even though every other government on the planet subsidiezes their airline and we leave ours to fend for themselves.

So when our auto industry folds up, who makes tanks and trucks and armor. When the airlines go our of business, who moves our troops and equipment?

I think you've read one too many free enterprise books

[herrmag]

Guy in Tennesse working for Denzo or Nissan makes $12 per hour.

Same guy in Detroit working for Ford or GM is making $100,000 / year.

No, the Japanese do not use unions.

But I interrupted you... you were telling us about free markets and level playing fields. By all means continue...

.....

Excellent point. Didn't Toyota actually talk about easing their market in the US based upon the fact that the US was threatening sanctions on auto imports? Either way, it's not an EVEN playing field. Unions saw to that. Their cause was noble, a while back.......

[smsmith40]

I posted this last year in a similar thread last year concentrating on GM. The move away from SUVs that I predicted would be disasterous for the Ford/GM seems t have started.

Also, somebody mentioned the Focus/Civic comparison, the Focus was originally designed here in Europe and the Mark I Focus is generally considered the superior car in terms of design, driving dynamics and very comparable on quality. The supply base in the US is different but something happens in Wayne and Hermasillo plants that doesn't happen in Saarlouis and Valencia.

Oh, and the guy who talks about cars only being designed to last 4 years is talking out of his backside.

I have no personal insight into GM but up until recently I worked for a very large, family owned automotive manufactures based in Michigan (I leave you to work out the rest).

I have spent 10 years in Product Development in Europe so I think I have a little bit of insight into some of the general issues facing the automotive industry.

As some of the posters have said previously the formula to make money in this business is pretty simple in theory, make cars that people want at a price they can afford and is higher than the cost of designing and building them.

However, this is fiendishly difficult to achieve. In actual fact the US is currently a relatively benign environment to make money from automotive production. The market is biased towards high margin vehicles like trucks and SUVs and sales for low and zero margin 'compact' cars are comparitively low . There is also a legacy of Buy American hanging around, especially in demographics that tend to buy high margin vehicles. Unfortunately for the Big 3, this environment is dissapearing fast as their customer base ages, and gas prices start an inexorable climb, demand for high margin vehicles seem set for a long term decline, at a time when competition is increasing in this sector. This seems to point to serious pressure on margins for the only part of the automotive businesss in the US that makes any money.

In the lower end of the market the Big 3 have been selling compact cars at Civic prices using Suburban labour and practises. Corporate fuel economy legislation in the 80s and 90s meant thta it made sense to sell the smaller and more efficient cars at zero or negative margins as that allowed you to sell more high margin, less effficient vehicles. This has meant that the customer of compacts has for 20 years not been exposed to the real economics of smaller vehicles (as built by the US manufacturers)The only way the Big 3 can even break even on these cars is to compromise on quality and feature. This has led to a declining share of this market and a poor reputation for quality. Two things that are extremely difficult to change.

In summary, the US market appear to be trending towards a European model of many competitors, smaller vehicles and lower margins . Great cars and excellent quality are only the entry ticket to this market, a ruthless concentration on cost reduction will be the only method of profit improvement. European manufacturers (including the European arms of the Big 3) have been exposed to Asian competition for much longer than the US and have over the last 15 years improved their product, adding both feature and significant quality improvements.

They have also cut billions of dollars out of both overhead and product cost. They have moved both supply and manufacture eastward to lower cost areas (initially to Easter Europe but increasingly to Asia and the Far East). They have leveraged technology and suppliers to massively downsized their product development process both in terms of headcount and development costs (my equivalent in the US had twice the manpower for half the workload).

So, in summary what is my outlook for GM? Well without massive protectionism it will cease to exist in its current form. If it is to survive in any meaningful context it must reduce costs, overheads and headcount, significantly increase productivity and make vehicles people want to buy. As I'm not a US consumer I don't know what that is (95% of US designed cars look unimaginably ugly to me). It must also improve quality out of sight.

Without fundamental, structural change GM will die. Its portfolio of brands may survive but nobody is going to buy out GM in its current form, with its current overheads, any interested parties will let it fail and pick up the worthwhile bits and pieces afterwards.

If you don't believe this could happen, check out any good articles on the fate of the UK volume automotive industry when after a protracted struggle our last remaining large sacle, British owned manufactuer, MG Rover collapsed.

[herrmag]

I posted this last year in a similar thread last year concentrating on GM. The move away from SUVs that I predicted would be disasterous for the Ford/GM seems t have started.

Also, somebody mentioned the Focus/Civic comparison, the Focus was originally designed here in Europe and the Mark I Focus is generally considered the superior car in terms of design, driving dynamics and very comparable on quality. The supply base in the US is different but something happens in Wayne and Hermasillo plants that doesn't happen in Saarlouis and Valencia.

Oh, and the guy who talks about cars only being designed to last 4 years is talking out of his backside.

Damn dude, it's too late to read that. I'll have to try in the morning. :laugh:

[MaddogCT]

If the real problem with American cars was the $100,000 per year Union salary , then how come Toyotas, with the $24,960 per year non-Union salary, cost more? Shouldn't be American cars cost more to buy than the Toyotas if your hypothosis were true?

:logo:

edit:

Is there an import tarriff on American cars going into Japan?

Japanese cars entering the US?

[smsmith40]

If the real problem with American cars was the $100,000 per year Union salary , then how come Toyotas, with the $24,960 per year non-Union salary, cost more? Shouldn't be American cars cost more to buy than the Toyotas if your hypothosis were true?

Commerce 101 - max selling price in an openly competitive market has no realtionship to manufacturing cost.

Toyota's cars sell at a higher price because people will pay more for them. US cars sell at a lower price because people will not pay any more for them.

Toyota is profitable because their cars sell at a higher price than they cost to build. Ford/GM is not profitable because they cannot sell at a higher price than it costs them to make cars.

It is a recognised fact that Ford/GMs car cost more to source and build than Asian manufacturers, this is due to an number of factors which include design efficiency, sourcing practises, manufacturing productivity as well as labour costs.

[iheartskins]

From this morning's WSJ Op/Ed page:

COMMENTARY

Auto Workers of the World Unite . . .

By JOHN B. SCHNAPP

January 25, 2006; Page A12

General Motors and Ford, bleeding cash and market share, have vowed to cut 60,000 jobs over the next half-dozen years. So far, though, they have been unable to request, much less obtain, more than token economic first-aid from the United Automobile Workers. A recent modest health-care "give-up" proposal at Ford provoked angry union militants to accuse their president, Ron Gettlefinger, of rank appeasement and was endorsed by a vote of only 51% to 49%. Ford's announcement of its "Way Forward" downsizing has led UAW leaders to grouse that both auto makers should be mobilizing to increase sales rather than engaging in brutal cutbacks.

The collective bargaining negotiations upcoming in 2007 loom as a likely auto industry Armageddon, in stark contrast to a rising trend among similarly threatened industries in Germany, where unions are quietly customizing deals to protect jobs and preserve employers. The evident unwillingness of the UAW rank-and-file to participate in that sort of salvation effort is a legacy of the union's justly admired founder, Walter Reuther, an inheritance likely to prove now progressively more obsolete and self-defeating.

* * *

Reuther (1907-1970) was an old-fashioned American lefty, a breed now long extinct. Growing up in the household of an ardently Socialist immigrant father, he and his dad in 1917 visited party leader Eugene Debs during his controversial incarceration for opposition to American involvement in World War I. It made a lasting impression.

[Walter Reuther]

Reuther became a tool-and-die maker at Ford, the pinnacle of auto worker technical achievements. In the midst of the Great Depression, Walter and his brother Victor worked for two years at the Gorky automobile factory in the USSR, designed by Ford for the Stalin regime. The experience left Reuther with a firm antipathy toward communism and communist labor factions in the U.S. He believed that they cynically subordinated worker interest to political ambition.

On his return, he became active in the infant UAW and on May 26, 1937, became engraved into the national conscience. He and other UAW leaders, engaged in a leafleting effort at the Miller Road gate of Ford's River Rouge complex, were confronted by club-wielding thugs led by Henry Ford's confidante, ex-boxer Harry Bennett. The resulting "Battle of the Overpass" and its one-sided bloodletting, photographed by Scotty Kilpatrick of the Detroit News and widely circulated in Life, Time and other outlets, shocked the country.

Inevitably, the persistent worker "sitdown" occupations of their plants, combined with pressure from the Roosevelt administration's National Labor Relations Board, led to the unionization of all American auto makers. In 1946, Reuther was elected president of the UAW after a longstanding struggle against a faction led by Homer Martin, George Addes and Richard Frankensteen, which was considered -- probably accurately -- as Communist. It was almost surely an outgrowth of this intramural conflict that prompted a 1948 shotgun blast through Reuther's kitchen window, which left his right arm permanently damaged.

As leader of his union, Reuther was a stubborn and tactically brilliant negotiator. He repeatedly challenged the auto makers to prove that they were economically unable to meet his demands, and invented the concept of a "target company." For each collective bargaining cycle, the UAW selected one auto maker for negotiation: It might be the weakest and most vulnerable to a strike threat, or the strongest and most able to provide a generous settlement. The contract hammered out with the target company became the "pattern" applied to everyone else. In 1948, Reuther also invented the linking of worker compensation to inflation through an automatic cost-of-living (COLA) escalator.

Walter Reuther created the foundation of the entire panoply of worker benefits that now contribute to the overall cost sclerosis at GM and Ford. But the aspect of his legacy that currently weighs most heavily on the future of these auto makers was philosophic.

First was the cultivation among UAW members of a primary attachment to the union rather than to their employers. The employer was an adversary to be confronted rather than an ally to which workers owed loyalty and support.

Second was Reuther's belief that the UAW should never allow itself to influence competition among auto makers by differentiating contract terms. Wages, hours, benefits and work rules were to be identical. Even as the weakest companies -- Studebaker, Hudson, Packard -- foundered in the '40s and '50s, Reuther's UAW made little effort to throw them a life preserver. Indeed, there was little reason to do so since overall industry growth in that period readily absorbed displaced UAW members.

Reuther died in 1970, and it was only a decade later, with Chrysler teetering on the edge of insolvency, did then-UAW President Douglas Fraser allow that company some relief from the established-pattern terms. This gesture and his accession to Chrysler's board of directors, together with a modest federal loan guarantee and Lee Iacocca's inspired managerial improvisation, saved the company. But Mr. Fraser's actions came late in the Chrysler crisis and it was all a close-run thing.

Walter Reuther could not have foreseen the competitive world that Doug Fraser faced, much less today's. In the year of his death, American companies still held 87% of the U.S. market. Only Volkswagen, among offshore auto makers, sold as many as half a million vehicles here. Toyota and Datsun jointly accounted for about a quarter million and the coming of Honda was still five years in the future. Indeed the big story in 1970 was a three-month UAW strike at GM, which cost that company more than a million units of production.

The habit of confrontation established by Reuther, though, deeply impedes the willingness of his union to seek creative quid pro quos that might help GM and Ford avoid bankruptcies -- bankruptcies that would undermine their credibility among potential customers and lead to likely voiding of collective bargaining agreements. Throughout Germany, in contrast, unions affiliated with the IG Metall confederation -- many of them in the auto-parts sector -- have quietly been making the company-specific deals with employers that Reuther abhorred, in order to prevent the shifting of production to lower-wage venues and to guarantee job security. The German unions' most frequent concessions have given employers greater control over work hours, extended the work day without additional compensation, applied lower wages to new employees and reduced year-end bonuses.

The UAW, instead, seems to be falling into a policy of angry negativism. GM and Ford, despite the intensity of their problems, are viewed as still-rich enterprises afflicted with managerial ineptness who will just have to figure things out for themselves. It remains an "us versus them" kind of world at Solidarity House, the UAW's Detroit headquarters. By refusing to become involved in solutions to the auto makers' problems, as Doug Fraser found it desirable to do 25 years ago, the UAW makes itself into an increasingly prominent part of those problems.

[mjah]

Also, somebody mentioned the Focus/Civic comparison, the Focus was originally designed here in Europe and the Mark I Focus is generally considered the superior car in terms of design, driving dynamics and very comparable on quality. The supply base in the US is different but something happens in Wayne and Hermasillo plants that doesn't happen in Saarlouis and Valencia.

Can't comment on the European version of the car (sourcing, assembly, etc.), which may very well yield a better vehicle than the Civic.

But the quality reputation of the US Focus is a complete joke. Here are some extracts from various sources:

Ford's attempt to focus on safety and reliability isn't getting much help from its recall-plagued subcompact, the Focus. With nine safety recalls and five defect investigations so far, the Focus is turning into a major black eye for Ford.

The latest investigation announced by the National Highway Traffic and Safety Administration (NHTSA) has to do with wheels falling off the 2000 models, the right and left rear wheels to be precise. There's already been a recall for a similar problem involving only the left rear wheels in some 203,000 2000 models.

Some 350,000 2000 models were recalled because their roof pillars could cause head injuries in crashes. Other problems include airbags that deploy inadvertently, engine compartment fires and engine stalling. -ConsumerAffairs.com

Overall satisfaction rating: Civic 88/100, Focus 74/100 -Autobytel.com

A brief look at the quality problems suffered by Ford in the past few years indicates that something is seriously wrong with quality practices at Ford Motors. ... Ford Focus was recalled due to possible cruise control cable problems, which was only one of the several problems encountered by this vehicle. NHTSA received more than 3,000 complaints in connection with Ford Focus, which led to open investigations about possible safety hazards. -White paper abstract

Focus has gotten somewhat better over the past two years. But any time wheels are falling off of your car, you have a serious problem.

That's crapulence of a 1980s Chevy Blazer magnitude.

[smsmith40]

I don't work for the aforementioned family owned automotive munufacturer any longer but I have been involved extensively in the development of certain models.

THe basic design of the Focus is sound and In Europe it has an excellent reputation for quality, but minor product recalls are not uncommon across the industry, I think you'll find that if you investigated it fully, there would be numerous recall or alerts on the Japanese models also.

I have to say that, having owned several European Focus over the last few years I have never had a problem with them, sitting in NA Focus does give you a different sense of quality. As I said, its not design quality because both models were designed by the same people, I assume its down to manufacturing and sourcing.

[Destino]

So you'd rather another manufacturor shut it's doors in the US? You 'd rather Harley Davidson had gone out of business?

I think you may be looking at different situations Sarge. I think the Harley Davidson situation was one where foreign makers of large motorcycles were being accused of "dumping" (selling in another country for less then you paid to make it) their products in the US, with the intent of running Harley out of business.

That isn't the same thing as just getting beat by your competition.

[Destino]

I've noticed that none of the people complaining about unions have responded to the design questions. US cars aren't failing to sell because they are too expensive, they tend to be cheap in fact. They aren't selling because they aren't as good. That isn't caused by a union, that just plain old bad design work.

[Kilmer17]

2 different issues Des.

People bought crappy asian cars for years.

I agree that americans WOULD buy american cars if they were built better. But they would also buy them as they are if they were cheaper to buy.

[Destino]

2 different issues Des.

People bought crappy asian cars for years.

I agree that americans WOULD buy american cars if they were built better. But they would also buy them as they are if they were cheaper to buy.

People did buy crappy asian cars and guess what they are buying crappy US cars for 0% financing and every other deal they throw at them. I'd rather american car makers compete with the best by putting quality first like Toyota/Honda have been doing. Lowering wages so that GM is better able to compete with the worlds worst cars by having a cheaper price tag, seems like giving up to me.

[mjah]

I used to work at NHTSA, and then briefly consulted with Ford in the area of quality assessment and improvement.

A recall or two, TSBs, the occasional defect investigation, etc. are not unusual for any car.

Finding nine recalls on the Focus, particularly for things like sticking throttles, dangerous roof pillars, and wheels falling off the car, is highly irregular. In fact, it's the most for any US car since 1980, when GM managed 13 on a single platform.

If Focus was known as a reliable car in Europe at the time of its introduction, then I'd guess it's the American component sourcing and assembly functions that dropped the ball. It would be hard for a bad design to provide a reliable product to the European market, so the design seems to be at least partially exonerated.

If you look at the recalls, most do not implicate the design stage. Though some might.

Fortunately for Ford, more recent Focus model years (2003-5) have proven to be dramatically better. But against the backdrop of the past five years -- Explorer rollovers, Ford's famous continuing electrical fires, etc. -- it looks pretty bad.

I'll stick with Honda and Inifiniti, thanks.

[smsmith40]

I'm glad things have improved because my personal involvement was with the later models.

I do accept that as an automotive design engineer, one recall is unacceptable let alone 9.

[mjah]

I'm glad things have improved because my personal involvement was with the later models.

So you were part of the solution, then. Good job, sir!

[Ignatius J.]

Commerce 101 - max selling price in an openly competitive market has no realtionship to manufacturing cost.

First year economics actually says the exact opposite, since one of the first things you prove is that price equals marginal cost in a competitive market.

[smsmith40]

IJ

I disagree, each product in an open market has its own demand curve, where a vendor sets his price determines his demand (or vice versa). In the auto business there is certain limitations to the minmum production rates that mean a certain amount of demand must be met (usually around 250,000 units per platform), under this limit means that volume manufacture is unlikely to be viable in the long term because the economies of scale are diminished and initial design costs must be met.

Given that a certain demand must be maintained, the market (ie demand curve) sets the price. How low do you have to price a product to be able to sell enough to make it efficiently.

In the case of Ford/GM this price point is lower, not than the marginal cost but is lower than the fully amortised cost. Hence, they lose money on small cars.

The reasons they have arrived at this point are complicated as I pointed out in my original post, but one reason is the CAFE fuel economy reuirements of the late 1980s and 1990s where an avarage fuel economy per unit sold by a munufacturer was measured and regulated, this meant that it became economic to sell a negative margin, fuel efficient vehicle (ie compacts and mid size) in order to allow a manufacturer to sell a high margin, fuel inefficient vehicle (luxury, SUV) without affecting the CAFE number.

THis led to a price point being created for smaller cars that was below the Big 3s fully accounted cost of those vehicles. In order to reduce this affect, cost reductions that affected build and design quality were introduced, leading to a poor reputation for quality.

The price point for a Focus is now pretty much fixed, if you priced at the same point as a Civic, you wouldn't sell any Focus.

As Mjah stated above the quality of the Focus has improved recently, the market perception of quality seems not to have. As somebody who has been associated with these kind of issues it is much more difficult to change the perception than it is to change the measurable quality.

[iheartskins]

Couple more from today's WSJ:

PAGE ONE

DOW JONES REPRINTS

This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit:

www.djreprints.com.

• See a sample reprint in PDF format.

• Order a reprint of this article now.

WASHINGTON WIRE

[Washington Wire]6

Read more from Bush's interview in Washington Wire7. The Journal's Washington bureau updates the Wire during the day -- every weekday -- with analysis, news and buzz from inside and outside the Beltway.

Bush Plays Down

Bailout Prospects

For GM and Ford

President Says Market Forces

Are Important for Industry;

A Hard Line on Hamas

By CHRISTOPHER COOPER and JOHN D. MCKINNON

Staff Reporters of THE WALL STREET JOURNAL

January 26, 2006; Page A1

WASHINGTON – President Bush said General Motors Corp. and Ford Motor Co. should develop "a product that's relevant" rather than look to Washington for help with their heavy pension obligations, and hinted he would take a dim view of a government bailout of the struggling auto makers.

In an Oval Office interview, Mr. Bush said that his administration has discussed the development of new fuel technologies with the nation's top two auto makers, which might make them more competitive, but that he has had no talks about the companies' finances.

[bush]

Asked if he had spoken to GM Chairman and Chief Executive Rick Wagoner or Ford Chairman and CEO William Clay Ford Jr., Mr. Bush replied: "Not about their balance sheets." He added: "And I haven't been asked by any automobile manufacturer about a bailout."

Earlier this week, Ford announced sweeping layoffs and plant closings, amid falling sales and increased foreign competition that have sparked concerns one or both of the auto makers may seek bankruptcy protection. Both have denied such plans. But the prospect has fueled speculation that the federal government could face pressure to bail out the companies, as President Carter's administration did in 1979 with $1.5 billion in loan guarantees for Chrysler Corp.

Mr. Bush said little to suggest the companies should find comfort in that precedent. "I have been very reluctant -- I'm mindful of the past where at one point in time, a predecessor of mine was faced with that same dilemma," he said. "I would hope I wouldn't be asked to make that decision."

Asked if the government should take any pre-emptive action, he said: "I think it's very important for the market to function." He suggested he felt optimistic about the companies' prospects.

The auto industry's struggles could become a big political issue in this year's midterm elections and beyond, especially in Midwestern states such as Michigan and Ohio, where much of the industry's manufacturing base is located. Ford and GM plan to cut at least 60,000 jobs over the next few years, and the fallout could ripple across the auto-supply industry as well, whether or not the companies ever seek bankruptcy protection. While resisting a bailout could cost Republicans support among some voters, it also would serve to shore up their support among those who favor free-market solutions.

While neither GM nor Ford has explicitly sought a Chrysler-style bailout, the two auto makers have dropped hints they would welcome government help in areas such as coping with rising health-care and pension burdens and the high costs of developing fuel-efficient vehicles. And both are key administration priorities in 2006.

Market Forces for Health Care

Speaking less than a week before his annual State of the Union address, Mr. Bush previewed his push to harness market forces to make health care more affordable by giving consumers more direct control of their care. Among other things, Mr. Bush signaled he wants to significantly expand the Health Savings Account program, under which workers who sign up for special high-deductible insurance are allowed to put away money tax-free to bankroll basic expenditures.

On other matters, Mr. Bush:

• said he would not deal with the radical Hamas Islamist party, regardless of how many seats it won in yesterday's Palestinian parliamentary elections until it accepts Israel's right to exist;

• declared that "it's important for us to exhaust all diplomacy" in trying to halt Iran's nuclear program, and said he advocates a plan for Russia to enrich nuclear material and deliver it to Iran for a civilian nuclear-energy program;

• said the controversial program to wiretap conversations between people inside and outside the U.S. without warrants was developed by national-security experts and was constructed outside an existing law on covert surveillance because "we require a different response to an enemy" in an era of terrorism.

In discussing the auto companies' woes, Mr. Bush suggested his sympathies lie more with the workers who are displaced or unsettled by a changing corporate environment, saying his administration would focus on ways to retrain laid-off employees. "This is going to be a very troubling time for workers and their families," Mr. Bush said, adding that companies had an obligation to assist employees they cut loose.

On the subject of ballooning pension expenses, which are part of Detroit's problems, Mr. Bush called on GM, Ford and the airline industry to think twice before backing away from their promises to pay in full. "That's not how the market works and that's not corporate responsibility as I see it," he said. "I'm very firm on seeing to it that this government hold people to account."

While neither GM nor Ford has sought to pass on pension obligations, a few airlines have. After filing for bankruptcy protection, UAL Corp.'s United Airlines and US Airways Group Inc. dumped nearly $10 billion in unfunded pension obligations on the Pension Benefit Guaranty Corp., the federal insurer of private-sector traditional pension plans. Northwest Airlines and Delta Air Lines, which are currently operating in Chapter 11, have said they haven't decided whether they will ask the court to shift their pension plans to the PBGC.

http://online.wsj.com/article_print/SB113822591395456282.html

and

GM Posts Massive Loss for Year

Amid North America Struggles

A WALL STREET JOURNAL ONLINE NEWS ROUNDUP

January 26, 2006 8:42 a.m.

General Motors Corp. posted a massive loss for the fourth quarter and year, amid weak performance in North America and restructuring and other charges.

GM reported a loss of $4.78 billion, or $8.45 a share, in the fourth quarter, compared with a loss of $99 million, or 18 cents a share, in the year-earlier quarter. Excluding items such as restructuring in North America and exposure to parts supplier Delphi Corp.'s benefits liabilities, GM had a loss of $1.2 billion, or $2.09 a share, in the quarter. These results compare to adjusted earnings of $726 million, or $1.28 a share, in the year-earlier period, GM said.

Revenue for the quarter was $51.2 billion, compared with $51.4 billion a year ago.

For full year 2005, GM reported a loss of $8.6 billion, or $15.13 a share, compared with net income of $2.8 billion, or $4.92 a share, in the year-ago period. Revenue was $192.6 billion in 2005, compared to $193.5 billion in 2004.

The year "was one of the most difficult years in GM's history, driven by poor performance in North America," said GM Chairman and Chief Executive Rick Wagoner said. "It was a year in which two significant fundamental weaknesses in our North American operations were fully exposed -- our huge legacy cost burden and our inability to adjust structural costs in line with falling revenue."

GM's North America operations reported an adjusted loss of $1.5 billion, after earning $449 million in the year-ago fourth quarter. The company blamed the drop on lower production of sport-utility vehicles and higher health-care and marketing costs.

"GM's top priority is to restore our North American operations to profitability and positive cash flow as quickly as possible," Mr. Wagoner said.

Problems at GM, Ford

The world's largest auto maker, along with No. 2 U.S. car maker Ford Motor Co., has been struggling with declining U.S. sales and rising health care and materials costs.

Mr. Wagoner said earlier this month that GM aims to reduce costs by about $11 billion by the end of 2010 in a sweeping plan that inevitably will lead to more job cuts beyond the 30,000 GM has promised by 2008.

President Bush, in an interview Wednesday, said GM and Ford should develop "a product that's relevant" rather than look to Washington for help with their heavy pension obligations, and hinted he would take a dim view of a government bailout of the struggling auto makers.

Asked if he had spoken to GM's Mr. Wagoner or Ford Chairman and CEO William Clay Ford Jr., Mr. Bush replied: "Not about their balance sheets." He added: "And I haven't been asked by any automobile manufacturer about a bailout." (See related article1 and Bush transcript2.)

DOWNSHIFTING

• Bush Plays Down Bailout Prospects for GM and Ford3

• Review U.S. auto assembly plant locations4

• Compare Ford's cuts to General Motors'5

GM also is cutting sticker prices for many of its models, as it tries to wean customers off of a steady diet of incentives. Last summer, amid slow sales and heavy inventories on many models, GM launched a clearance sale, offering vehicles at employee-discount pricing. Although the deal came with slimmer margins, it boosted sales significantly. But GM's sales were sluggish for several months after the promotion, even as Japanese rivals made steady inroads.

In recent months, GM's stock price slumped as investors grew alarmed at the company's inability to turn a profit on auto making. In December, Standard & Poor's downgraded GM's corporate credit rating two notches to a B, with a negative outlook, from a previous rating of double-B-minus, saying GM's prospects for a bankruptcy filing had increased.

The Detroit-based company, however, recently received an endorsement of sorts. Investor Kirk Kerkorian boosted his stake in GM back to 9.9%, paying about $263 million for 12 million shares of the auto maker -- essentially reversing a December sale that had lowered his stake to 7.8%.

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