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Grim year for Detroit show

2009-01-10 13:19

Detroit - Automakers will introduce glossy cars and new hybrids at the Detroit Auto Show, but with General Motors Corp and Chrysler LLC still teetering on the edge of failure and industry sales expected to worsen, the lure of shiny new sheetmetal may not be what it was in the past.

Economic uncertainty and a fight to survive will take centre stage at the auto show media preview that opens Sunday as the battered industry shelves the glitz to save precious marketing dollars and braces for another rough ride in 2009.

The struggles of GM, Ford Motor Co and Chrysler - seen as the weakest of the Detroit Three - to survive a deepening global recession and vicious plunge in auto sales hang over the industry's single biggest marketing event.

Highlighting the gloom in the Motor City, the show opens as the United Auto Workers union gears up for another round of tough negotiations with GM and Chrysler, which are mandated to cut labour costs under a $17.4 billion federal bailout.

"When you have your hand out to the government and when you're operating at this point on government funds, it is a little inappropriate to give a big party," said IHS Global Insight analyst John Wolkonowicz.

Chinese take to Detroit floor

Many automakers - including Nissan, Mitsubishi and Suzuki - are skipping the show and almost every company is scaling back displays. Their exits have left space for Chinese automakers to be on the floor for the first time this year.

But the big question for auto executives remains ... How much lower could the US market for cars and trucks drop?

US auto sales fell 18.5% to 13.2 million units in 2008, dragged down by the credit crisis, financial market turmoil and a weak housing sector that caused consumer confidence to plunge to record lows.

Most Wall Street analysts and industry experts expect sales to decline in 2009, to as low as 10.5 million units, with some automakers looking for a pick up in demand by year end. The first quarter is expected to be an extension of 2008.

Anthony Pratt, senior manager of PricewaterhouseCoopers' Automotive Institute in Detroit, said the first quarter could be extremely difficult. He expects auto sales to fall 10.5% globally in 2009 amid further industry restructuring.

"Even Toyota, one manufacturer that seemed bullet proof so far, is making cuts," Pratt said.

While faring better than the US automakers, Toyota Motor Corp is forecasting its first-ever operating loss for the business year to March 31 and it has also put on hold plans to complete a new assembly plant in Mississippi.

Ford and GM, preparing for a further plunge in demand, have cut first quarter production plans by 38% and 53%, respectively, from a year ago.

The new austerity

Erich Merkle, an auto industry consultant based in Grand Rapids, Michigan, said Detroit's automakers would have trouble getting the world to focus on their vehicles when their very survival is being questioned.

"The economics of the situation definitely are difficult, there is no question," Merkle said.

GM, Chrysler and Ford - which typically have extravagant product introductions and multi-million dollar displays - have cut back on auto show budgets and Japanese automakers also plan for a low-key presence.

Chrysler, which some analysts say could be participating in its last Detroit auto show, has toned down the bombast in favour of a straightforward approach. It has scrapped the Jeep waterfall, complimentary computer Internet access and free lunches at its stand, spokesman Rick Deneau said.

In 2008, Chrysler punctuated the introduction of a redesigned Dodge Ram pickup with a cattle drive in front of the show venue complete with cowboys and Texas Longhorn cattle.

The previous year, the automaker's new Jeep Wrangler broke through the front window of Cobo Hall in its world debut.

Chrysler also has dropped its sponsorship of a firehouse converted into a pub for reporters under the new austerity drive. The automaker provided free food and drinks - served by top auto executives and celebrities - to reporters during the press preview, an enormously popular spot for the media.

GM, on the other hand, has eliminated its annual fashion show that was usually headlined by a Hollywood celebrity.

Honda Motor Co will have a booth but no press conference, foregoing an opportunity to play up the debut of its all-important new Insight -- the first of its next generation of low-cost hybrid cars.

In a departure from the past, few executives from Japan are attending the show. Honda CEO Takeo Fukui will skip the show for the first time since taking the helm at in 2003.

But in a bright spot, KeyBanc Capital Markets analyst Brett Hoselton said that despite the deterioration in the outlook for global vehicle sales, auto supplier stocks have performed well since November, rising 25 to 150% driven primarily by investor optimism that auto sales may have bottomed.


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