And the dominos begin to fall...

Ford poised to follow with cuts

Ford executive Mark Fields is no doubt watching closely as his rivals at General Motors attempt to sell a restructuring plan that would close 12 plants and eliminate 30,000 jobs. Fields, who was appointed president of Ford's Americas unit in September, is scheduled next month to submit to the board of directors his own plan to overhaul the money-losing company's production in the hemisphere. Analysts expect the Ford plan will be nearly as painful as the one GM announced yesterday and possibly more difficult to accomplish. At the same time, North America's second-largest car maker is negotiating with its United Auto Workers union to slash post-retirement health benefits by as much as US$1-billion a year. As with GM, Ford will be counting on the agreement of its unions to eliminate jobs and cut retiree benefits, and will be looking to bolster investor confidence to support its sagging share price and improve its junk-status credit rating. Ford has relied heavily on trucks and SUVs to maintain its sales in North America. But like GM, it has seen its margins squeezed by intense competition caused by overcapacity in the North American market, and by a sharp decline in the sale of larger vehicles because of soaring gasoline prices.

On Friday, Ford announced it would eliminate 4,000 salaried jobs or 10% of its white-collar work force in North America. Ford chairman and ceo Bill Ford plans to unveil the broader restructuring plan by late January, and has warned it will include plant closings and the loss of thousands of jobs. Analysts at the independent Center for Automotive Research in Ann Arbor, MI, expect Fields to recommend the elimination of 20,000 jobs and at least five major assembly plants, although they believe Canada will be largely spared.
(Globe and Mail 051122)

Toyota seen coping after gaining crown

Toyota may soon supplant General Motors as the world's largest automaker, but there is little evidence to suggest the company will suffer the same fall from grace as its bloated US rival, analysts say. As GM cuts as many as one million cars from the nine million it churned out last year, Toyota is expected to produce 9.2 million vehicles next year. That doesn't include cars from new Canadian and US plants Toyota is slated to open over the next few years in a bid to catch up with its surging market share. Scaling back isn't even in Toyota's sights for the foreseeable future, said Rebecca Lindland, senior analyst at Global Insight in Lexington, MA. "Toyota's plants are running at 110% capacity," she said. "Toyota, as well as Honda and Nissan, can all use more plants in North America." But that growth may come with a price and Toyota is showing its first signs of growing pains as top management worries the company's reputation for quality is taking a hit. Indeed, Toyota has started a "back to basics" program in the wake of its largest ever vehicle recall last month when it called back 1.25 million vehicles. The firm's European division head described the recall as a "very serious concern" for Toyota and warned that rivals are gaining ground against the Japanese automaker in quality surveys. But analysts note that Toyota is much smarter than GM when it comes to reading the market. "Even as Toyota continues to climb, they are always watching their back," Lindland said. "GM, Ford and Chrysler were in this bubble where they said, 'We're the biggest, we're the best and nothing is ever going to happen to us.' As a company, Toyota's much more aware of the competition than the Big Three has ever been."
(National Post 051122)

China frets over auto-capacity glut

Chinese policy makers -- and some investors -- are getting worried there might not be enough customers to buy all the cars coming off the country's assembly lines. By 2010, a top government official warned last week, total annual production capacity will exceed 20 million vehicles, while demand will be nine million. "The industry is facing a grave overproduction situation," said Chen Bin, deputy director of the National Development and Reform Commission's industrial department. Global auto makers including Volkswagen, General Motors and Toyota have announced plans to invest further in China, in some cases tripling capacity. The market has experienced a surge of entrants and new models in the past five years: In 2000, only 15 passenger models were available. Today, 32 brands are producing more than 125 models, according to industry consultant Automotive Resources Asia. China's annual production capacity already is more than eight million units, within striking distance of Germany, the world's third-biggest auto manufacturer after the US and Japan. About five million vehicles were sold in China in 2004. For foreign manufacturers in China, the export possibilities so far offer little solace. Auto makers such as DaimlerChrysler -- with a newly expanded plant on the outskirts of Beijing -- are trying to figure out how to use China's cheap labor the same way the computer and textiles industries have. But no manufacturer has been able to profitably export significant amounts of cars.
(Wall Street Journal 051122)