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Saturday, June 19, 2004

Detroit's big three in the slow lane via Economist

America’s big three carmakers are still struggling to halt their steady loss of customers to foreign—especially Japanese—rivals.The continued rise of the Japanese carmakers, especially Toyota, has been remarkable. Foreign-branded cars now account for half of all passenger cars sold in America. Detroit ceded this territory to the incomers, choosing to concentrate on more profitable niches such as sport-utility vehicles (SUVs, also known as four-by-fours), light trucks and minivans.The big three are lumbered with pension costs and health benefits for their armies of retired workers. GM now has no fewer than 2.4 retirees for every worker, and reckons that these cost the equivalent of $1,000 for every vehicle it makes. GM had to plug a $19 billion hole in its pension scheme last year, largely by issuing bonds.In contrast, the Japanese have much lower pension and health-care costs than the Detroit big three. To counter Congress’s protectionist tendencies, they have sensibly established American manufacturing plants. And they have put them in the South, far from the citadel of union power that is Detroit. They also seem to be better at designing cars that customers want to buy, since their marketing costs per vehicle are about a third of what the big three have to spend to shift their models off the forecourts. Not surprisingly, Toyota makes profits of $1,500-2,000 per car in America.Last year, Toyota sold more cars than Chrysler in America. This year, it overtook Ford as the world’s second-biggest carmaker, behind GM. Its stockmarket value already exceeds that of the big three combined. Can it be too much longer before, in terms of units sold, Toyota also has GM in its rear-view mirror.

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