Car Industry Still Competitive—in Race to the Bottom

January 30th, 2009

2007 Toyota YarisToyota just got hammered with a recall for a seatbelt component in its 2005-08 Vitz, Belta, and Ractis cars. Some 1.35 million cars are affected, including what we in the U.S. know as the Yaris.

The company isn’t saying how much all this will cost, but at a cheap estimate of $150 per car, it comes to more than $200 million. And that doesn’t include the negative PR value that recalls carry.

This comes at a time when Toyota has just overtaken GM as the world’s largest auto producer, though neither firm has much to celebrate. Toyota beat out everybody but Chrysler in sales drops for December ‘08: down 37% vs. Chrysler’s 53%.

Not to be outdone, Ford took a $14.6 billion bath for 2008, including a whopping $5.9 billion loss in the fourth quarter. Because the auto industry has enormous fixed costs, the companies are burning through cash at terrific rates. It’s hard to see how this can stop, short of unfreezing credit. Instead of taking money from the government, Ford is going to its credit lines for an additional $10 billion in February.

mark-fields-fordWhile it’s healthier than the other Big Two, Ford’s outlook for increasing sales is pretty bleak. One thing it could do is get rid of Mark Fields, formerly one of the company’s “leading figures” whose real contribution to the firm is in some doubt. Says Michelle Krebs:

What really rankles those in the know is that Fields isn’t here in Detroit. He lives in Florida. As part of his contract, he boards the corporate jet every Friday afternoon to go home to Florida. The crew waits for him and delivers him back to Dearborn for the start of the work week. A Detroit TV station reported the estimated cost to Ford to be anywhere from $1 million to $3 million a year. At a time when employees face layoffs, plant closings and buyout offers, such expenses seem self-indulgent at best.

Hmm, didn’t we just hear about Mr. Obama’s reaction to all those Wall Street bonuses?

Is the auto industry still too “self indulgent”?

—jgoods

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