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Big Three Face New Obstacles in Restructuring

From The Wall Street Journal| January 29,2007
For all their efforts last year, the three U.S. auto makers continue to labor under heavy cost burdens, including hefty obligations to their union workers. But their real challenge is how to stop burning cash in futile efforts to manage decline. They can no longer rely on the cost-cutting and sales-boosting strategies of the past, such as squeezing parts suppliers for discounts, pressuring dealers to accept excess inventory and demanding higher prices from consumers. Today they face suppliers who are less likely to give in to their demands, consumers who want less costly and less profitable but more-fuel-efficient vehicles, and auto dealers who are less dependent on a single Detroit brand. "It is a tougher environment to restructure," said Ford Chief Financial Officer Don Leclair, in an interview. "The dealer body is stressed and suppliers are stressed, and to a large degree that's reflective of our own issues here." The rise in multibrand auto dealers has made it more difficult for the Big Three to lean on their dealer networks to accept more cars and trucks than they need, a tactic the car makers once used to prop up revenue. Many dealers have added Asian auto brands such as Toyota or Honda to their mix, making them better able to resist Detroit's demands. As a result, all of Detroit's auto makers had to cut production in late 2006 while dealers cleared their lots of unsold vehicles.

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