CSM: Detroit-2 Will Soon Be In Minority of NA Manufacturing

For leading auto industry forecasting firm CSM Worldwide, the Detroit-3 is already the Detroit-2.

At a gathering of the Automotive Press Association in Detroit today, the firm’s chief of forecasting Michael Robinet said, “Chrysler doesn’t have the scale to survive.”

Robinet and his partners posited that the only pieces of Chrysler worth saving going forward are the company’s unique platform models—minivans, Jeep Wrangler and perhaps the pickup truck business. The firm also noted that the company’s dealer network should be attractive to a foreign automaker, which, if acquired, would wind down Chrysler’s models and start to introduce its own—think one of the Chinese automakers.

One of the more disturbing reports from CSM was that with auto sales dropping to 11 million or so next year, capacity utilization among the companies will be about 50%. Ouch. That’s down from around 75%. The ideal, of course, is between 90% and 100%. The drop in utilization is because the planst aren’t closing fast enough and because slow-selling models haven’t been cancelled fast enough.

Case in point: Chrysler operates a plant in Sterling Heights Michigan that turns out Chrysler Sebrings and Dodge Avengers. Last month, Chrysler sold only about 4,200 Chrysler Sebrings and Dodge Avengers. Through November, those two models only sold 106,000. The assembly complex is 3 million square feet and 286 acres. I don’t have the current employee level. But in March 2007, it was carrying 4,500 workers.

That’s the kind of capacity removal that the UAW is going to have accept without condition if they still want to have an industry. The Sebring and Avenger, developed by Daimler have been hopeless. They languish at te bottom of almost every third-party measurement of quality and consumer appeal. It’s not the UAW’s fault that the designs and executions of these models were botched. But there it is. And here we are.

Another interesting point raised by CSM: By 2011, after planned plant closures by the Detroit-Two and Chrysler, the U.S. auto industry will account for a minority of U.S. vehicle production. Today, it’s about 54%. In a couple of years, they will be down to 46%.

The CSM report and partners also pointed out an incredibly obvious point that is worth making again while the Congress debates whether to let the domestic auto industry take its chances in bankruptcy court.

CSM’s Eric Fedewa, who is the firm’s power-train expert, made the point that very few members of Congress care about; that Japan and Germany have created an industrial policy in their countries that creates stability in their marketplaces for energy prices. “If we had gas prices [a price floor] between $3.50 and $4.00, we would see more stability in the marketplace to allow for better product planning, innovation and technology investment.”

Case in point: If the U.S. had a policy that our partisan, dysfunctional Congress could get behind, the U.S. industry wouldn’t have over-committed to making SUVs in the late 1990s and in the first few years of the new century.

Fedewa called Congress’s approach to policy-making “ad hoc” and seat-of-the-pants.” He was being generous.

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