Everything either grows or dies. As The Big Two Point Five face the New Year, they’d do well to remember this. All the talk about “market share stabilization,” “matching production to demand,” and “right-sizing” is merely an attempt to obscure the simple fact that they’re dying. I know: that’s a pretty depressing sentiment for automakers still staggering about with an SUV-sized hangover. But death is a normal part of life; a precursor to rebirth. As 2006 dies, 2007 beckons. Here’s a guide to what Detroit faces– must face– in the year ahead.

This is the year that Toyota will supplant Ford as America’s Number Two automaker and replace General Motors as the world’s Number One. These two milestones will provide incontrovertible proof that The Big Two Point Five’s day is over (at least for now). The damage flowing from that increasingly obvious fact will be both subtle and, ultimately, devastating. For one thing, the best and brightest have a natural aversion to working on a sinking ship. BMW, Mercedes, Honda, Toyota and Hyundai will continue to cherry pick the industry’s top management, designers, engineers, production experts and marketers. The little discussed Detroit brain drain will exact a heavy toll.

Secondly, as Mr. Neundorf has written, the rearranging of America’s automotive pantheon will end the average consumer’s ignorance of Detroit’s distress. The media buzzards have been circling The Big Two Point Five for some time, refraining from swooping down because of their collective ignorance, [misplaced] respect and simple disinterest. Once Toyota punts Ford, GM and Chrysler down the sales ladder, the 2.5’s anguish will become carrion feeder catnip. How did the foreigners kick America’s ass again? What does it mean for our country’s industrial base? Although reporters will focus on turnarounds and comebacks– at least initially– the cumulative effect will corrode consumer confidence.

This is also the year that Detroit must finally shuck the union straightjacket– and won’t. Analysts who predict that the United Auto Workers’ (UAW) will come to the negotiating table with “a new sense of realism” (or some such set of code words indicating a supposed readiness to take a hit for the team) will be proven wrong. Once again, there will be some kind of media-friendly slight-of-hand. Last year, GM’s workers “gave up” a $1 an hour wage hike– which actually went straight to their health care compensation. They also “gave back” health care benefits in exchange for a not-as-well-publicized $3b health care VEBA. This is the new template for Detroit labor relations.

By topping-up their coffers, GM and Ford have virtually guaranteed a continuation of union intransigence. In fact, management happy talk about incipient turnarounds makes it highly unlikely that they’ll do the only thing they can do to wrest control of their companies back from the UAW: face down a UAW strike. Wagoner (GM) and Mulally (Ford) have a long history of playing ball with the unions. They’re less likely to exercise the nuclear option against the UAW than the US is against the UAE. Chrysler’s German owners are also strike-aversive; what with the need to keep the company solvent enough to sell. So it’ll be [less and less] business as usual.

In ’07, The Big Two Point Five will all feel the cash burn. If the economy slows down or gas prices go way up, it’ll be a fully-fledged conflagration. Meanwhile and in any case, the biggest threat to their existence is the same one that’s been nibbling away at them for the last three decades: new and/or improved products. We’ve already written about the new Toyota Tundra’s impact on The Big Two Point Five’s mission critical pickup truck margins. The transplants are also set to launch new or improved cars, crossovers and hybrids, and refreshes aplenty. The gap between the Big 2.5’s products and those of their competitors’ is not likely to narrow significantly this year.

Once again, the only real hope for The Big Two Point Five is cataclysmic change. Given their deep pockets, I don’t think Ford or Chrysler will file in ‘07, but there is a chance that circumstances (and their own ongoing incompetence) will force GM to face the inevitable. It could come from any number of different angles: a supplier “run on the bank,” a severe economic downturn, a tipping point-style loss of market share, a UAW strike, SEC criminal charges leading to chaos, a combination of these factors or something unexpected. If GM goes down, the ripple effect on suppliers will drag Ford under, and then Chrysler.  

For The Big Two Point Five, ’07 will be a year much like the last, typified by denial, obfuscation and compromise. TTAC will be here chronicling the story. Rest assured we do so knowing that Americans produce some of the world’s best automobiles. One way or another, sooner or later, The Big Two Point Five will have to recreate themselves, to rise, Phoenix-like, from the ashes.  

Picture this: you’re a middle-aged, mid-level, middle-management guy in the mid-west. You’ve gone a bit doughy around the middle. You’ve got 2.5 kids and a golden retriever. You got socks for Christmas. It’s been a long time since you handed in your acid-wash denims for wrinkle-resistant Dockers, swapped the Van Halen for Vivaldi, and traded in the Firechicken for a four-door bore. But there’s something strange about today. The (predictably) silver sedan you’re sliding into isn’t all that boring. She’s got dual exhausts, a V6 packed with ponies and check out those taillights… Sweet! You hit the push-button-starter (!) and there’s an underhood growl, just as Wilson Phillips breaks into, “Hold On For One More Day.” Yep, it’s the 2007 Nissan Altima.

Writing in his Fastlane Blog, GM Car Czar Bob Lutz recently claimed that proposals to raise Corporate Average Fuel Economy (CAFE) standards by four percent per year would “effectively hand the truck and SUV market over to the imports, particularly the Japanese, who have earned years of accumulated credits from their fleets of formerly very small cars." Wrong. First, CAFE credits were never transferable between cars and light trucks. Second, as of ’07, light truck CAFE standards are gone; replaced by target mileage figures based on a vehicle’s footprint. Third, even when there WERE such things as CAFE credits for light trucks, Toyota, Honda and Nissan never used them. Fourth, Bob Lutz is an idiot.

Some time ago, we pointed out that an auto industry executive who can’t name Volkswagen’s brands wasn’t an ideal choice for Vice Chairman of Global Product Development. We’ve also chronicled the numerous occasions when Maximum Bob’s betrayed his firmly held belief that firmly held beliefs trump reality, even when they don’t. And now he’s taking on both environmentalists and the federal government without having a clue what he’s talking about.

It’s hard to believe that this uninformed loose cannon was hired to be GM’s “car guy”: the man charged with lifting GM’s products from their fug of mediocrity into a brave new world of stunning design, peerless powertrains and world class interiors. Feel free to debate Lutz’ handiwork thus far, but I reckon the majority of The General’s new products continue down the path marked not-quite, me-too, also-ran, we’re getting there, you just wait and WTF. The fact that GM’s Car Czar is still around to say stupid things on his blog (and in the media) says bad things about CEO Rick Wagoner’s management skills.

If you’re wondering why Wagoner lets Lutz get away with spouting politically incorrect nonsense, it’s because what Lutz says, others think. Face it: GM’s Board of Bystanders doesn’t pay an employee over $6m per year and give him his very own blog if his opinions fly in the face of his equally well-compensated peers. So when Bob gripes that more stringent CAFE standards would put domestic manufacturers “at odds with the desires of most of our customers, namely larger vehicles,” you can bet that the “bigger is better” mantra is alive and well at RenCen.

Yes, despite resurgent environmentalism and the effects of the Iraq war on the American motorist’s psyche (i.e. increasing their concern about fuel consumption), Maximum Bob’s mob continues to believe that U.S. consumers want the biggest damn vehicle they can afford, period. In Bob’s world, it’s all about size: “I’m the guy on record who compared forcing automakers to sell smaller cars to improve fuel economy with fighting the nation’s obesity problem by forcing clothing manufacturers to sell garments in only small sizes.”

Bob believes that CAFE regulations are a government plot to thwart the will of the American people and shoehorn them into uncomfortable cars. Bob’s subsequent proposition– higher gas prices are a fairer and more compelling way to get Americans to drive “very small cars”– is not without merit. Of course, MB quickly assures his readers that he’s not advocating higher gas prices. No, bio-fuels are the “real way to save fuel”– until GM can realize the “electrification” of its vehicles (which, presumably, the government won’t encourage force anyone to buy).

According to Maximum Bob, as long as gas costs around $2 a gallon, “people will exercise their freedom to buy the vehicle they want, V8 engine and all.” In other words, Americans are selfish bastards who will buy gas-guzzling land yachts– unless they can’t afford to. Even if you agree with this sentiment and reject my depiction of MB as a clueless blowhard whose ideas date back to the days when Detroit dismissed small (yes small) imported cars as “Jap crap,” you have to admit that he’s making all the wrong noises. 

The question is, who’s listening? The comments immediately following Bob’s post indicate he’s preaching to the choir. Our own ThriftyTechie spoke for many: “Couldn’t have said it better myself.” But after Bob’s message hit the mainstream media, the comments grow more… impatient. “Quit whining,” Chris R chides. “GM should be faster to market with products that people want to buy.” As GM’s PR bouncers pre-approve all published comments, one wonders how many more vitriolic reactions were swept under the e-rug. Plenty, I’d guess.

But again, the more important audience for Bob’s “Season’s rantings” lies within GM. If GM’s Car Czar can slam CAFE standards with irrational, bellicose, self-righteous and petulant impunity, in public, what effect does his anti-efficiency argument have on the thousands of designers, engineers, pencil pushers and bean counters further down the GM food chain? With Maximum Bob Lutz calling the shots for GM's product portfolio, The General doesn't have a hope in Hell of pulling itself out of its current tailspin. Blog that Bob.

[Click here  for "Season's Rantings" on GM's Fastlane blog.] 

The average American car buyer is completely unaware of Ford’s financial troubles. They don’t know Alan Mulally from Bertie Ahern. They don’t know that Ford’s taken out The Mother of All Bank Loans, mortgaging everything up to and including the company logo. They don’t know the automaker’s got three years to avoid annihilation. But the day Toyota overtakes Ford as America’s number two carmaker, the U.S. consumer will get a multi-media wake-up call. The psychological damage will be profound. Not that Ford sees it that way.

“Our focus is on getting our business back on a solid footing to return to profitability,” George Pipas pronounced. “Any talk about sales ranking is little more than a distraction." That’s a strange comment coming from a man holding the title “Chief Sales Statistician, Ford Motor Company.” But Pipas has a point. Why worry about Toyota’s rise to the top when you’re fighting to stay alive?  

Seven years ago, Dearborn’s Darlings were worth just over $80b. This year, Ford’s market cap stands at $13b. Although the company has topped-up its cash reserves with $26b of newly leveraged liquidity, it's set to toss $17b of that into the fire over the next three years. Will it be enough? Ford Flack Oscar Suris claims the more fully funded Blue Oval is perfectly positioned to handle the day-to-day challenges of being number three. Suris insists that neither a recession nor “any other event” (wind, sleet and snow?) could force the freshly flush Ford to flounder. 

John Novak of Morningstar Inc., ain’t buying it. Like any sensible auto industry analyst, Novak insists that Ford’s survival depends entirely on its ability to generate cash through improved sales and profit ratios. Without a new cost-cutting UAW contract and substantial regrowth in its market share, Billy Ford's mob will be hard pressed to service the family firm's debt, never mind pay off the principal.

To keep the bankers at bay and the coffers at capacity, Ford is staking its short term future on the new Edge. The Blue Oval’s blitzing the American public with $100m in edgy Edge advertising. And why not? The sharp-looking crossover is FoMoCo's only shot at much-needed, long-overdue new product buzz. To add timbre to that tone, Dearborn is cranking up its marketing machine to new heights.

This latest advertising onslaught owes its genesis (genius?) to The Way Fordward Version 1.0. Flying in the face of all the badge-engineered inbreeding polluting the gene pool of Ford's extended family of products, the company has decided it’s all about "Brand DNA." They're going to (re)define their soon-to-be-decided number of divisions, create products that embody these new, more coherent brand values, and then sell the vehicles to people who, um, want them. The Edge campaign is designed to build on– OK, "initiate" this not-so-novel concept. 

The Glass House Gang are pitching the cross border crossover in every conceivable medium, to every imaginable market, in every possible language (even “Spanglish”). Rolling Stone gets a centerfold, NBC’s Las Vegas gets product [out-of-]placement, urban skyscrapers get hallucinatory projections and Edmunds gets richer. Despite the ubiquity, Ford has some human DNA in its sights: single men and women in their mid-thirties with an active lifestyle (codenamed "Phil" and “Mia”).

Celebrities ranging from Korean soap star Ahn Jae Wook to Beyonce Knowles will pocket large checks to push their fan base over– I mean into an Edge. Ballers n’ playas tuning into to the Steve Harvey show will hear Grammy nominee Kelis’ (pronounced “Kuh-Leese”) musical campaign contribution: “Push it to the Edge.” Jeri Ward, Ford Edge Marketing Manager, sees the hip hop artist as “the perfect spokesperson for the urban Edge campaign… she has a bold style that breaks the rules.” Apparently, the lady whose milkshake brought all the boys to the yard “prefers bold designs.” So sending them to a Ford dealer should be a piece of cake.

Whether or not Phil, Mia and their hip-hop lovin' friends elevate the not-so-bling Ford Edge to stuntin' 'Sclade status, FoMoCo's crossover is sailing straight into a consumer headwind. The U.S. housing market is in its first full year decline since the Great Depression. After years of cash-on-the-hood and no interest loans for anyone with a pulse, the demand for new vehicle financing is drying up– even as Ford’s middle class mid-market buyer finds that expendable income is becoming as scarce as storage space on Ford dealers’ lots. Industry mavens CSM Worldwide predict that Billy's Boyz will bear the brunt of a nine-year, 16.2m unit low in auto sales.

In short, the Edge has got to sell while the selling’s good. The New York Times predicts that Toyota will scoop America's number two sales slot next February. On that fateful day, American car buyers will know something’s very wrong over at Ford. Tipping point or no, selling a Ford is about to get a LOT harder. 

When dairy cows go dry, farmers have them “freshened” (that’s what bulls are for). Chrysler’s long-time cash cows, its minivans, have gone dry. After an eleven year hiatus, the bulls have been busy. The embattled carmaker will reveal the long overdue “freshening” of their once mighty Dodge Caravan / Chrysler Town and Country models at the Detroit auto show in January. The re-styled ’08 minivans are critical to Chrysler’s profits. Will they restore their fruitful dominance or produce a mere blip on a sales chart with a decidedly downwards trajectory?

Although there's considerable debate on this point, Chrysler is generally credited with inventing the modern minivan. The minivan certainly reinvented Chrysler. After flirting with oblivion, the original Caravan and Voyager pumped billions into Chrysler's coffers in the mid ‘80’s through the '90’s. The minivan was such a successful suburban schlepper that it created its own demographic: the soccer Mom. The product’s popularity peaked at 1.6m units in 2000, when Chrysler owned some 45% of the market.

At last count, U.S. minivans sales have fallen below the one million mark. Sales of the once mighty Dodge/Chrysler twins have tumbled from a height of 650k annual units, to today’s estimated 400k units. Even worse, DCX’ door sliders are struggling to keep their slice of the diminishing pie. The models’ combined market share has fallen below 39%. Given the number of DCX minivans’ that find their way into rental fleets, their retail market share is probably closer to 35%.

Obviously enough, DCX’ minivan-related profits have taken a major hit. The company hasn’t been able to fully utilize both its Windsor, Ontario and St. Louis, Missouri minivan plants for quite some time. Even so, there's a minivan glut on dealers' lots and empty spaces (bank on it). The discrepency between ongoing supply and falling demand has meant massive incentives at the sharp end; trimming yet more profit from the products’ increasingly thin margins. Rather than fight for a slice of the diminishing pie, Ford and GM have in-sinkerated the minivan entries and cooked-up new entries for the so-called crossover market.

Most analysts are pessimistic about the minivan’s future. Many claim baby boomers are all boomed-out; they’re now looking for comfort rather than space. Meanwhile, soft roaders and crossover utility vehicles (CUVs)– some of which now come with third row seating– are encroaching deep into minivanland. Others aren’t so gloomy. They maintain that the genre’s family-friendly combination of safety, practicality and frugality is fundamentally sound. They say the right minivan could shake-off the Mom-mobile image and reinvigorate the entire niche.

Chrysler’s minivan situation is deeply reminiscent of the Ford Taurus, which fell from the top of U.S. passenger car sales when long product cycles, poor reliability, ageing technology and boring styling allowed the Toyota Camry and Honda Accord to dominated passenger car sales. Although Chrysler’s minivans ruled the domestic market for years, that dominance didn’t include a bullet-proof rep. Their minivans have a dubious mechanical legacy, including a self-destructing Ultradrive transmission and disastrous early ABS. With Mercedes behind them– at least in theory– Chrysler may have a fighting chance. If Chrysler builds a minivan that's only slightly better than their last effort, if they don't leapfrog the competition, they're screwed.

Chrysler’s new minivan must face down the Honda and Toyota, both of which produced minivans that came from nowhere to slowly and inexorably carve out about 34% of the market. At the same time, Chrysler’s '08 faces new competition from the Kia Sedona, and its Hyundai twin the Entourage. Both models are scooping up budget-minded buyers left high and dry by Ford and GM’s withdrawal from the market.    

Spy pics of the DCX new minivan show another big, bland, boring box. The rumor mill suggests that Chrysler’s new minivans will be blessed with styling influences from the 300C. If so, it’s a calculated risk. As GM found out the hard way with its “dust-buster” Lumina MPV, minivan buyers generally favor conservative styling.  They tend to look for practical qualities like reliability, build and interior quality, reputation, resale value, etc. Stow and Go or no, these are not qualities generally associated with today’s Chrysler/Dodge. Chrysler projects sales between 430k to 480k annually.

DCX will do well to maintain current minivan volumes. In fact, in category after category, Chrysler is looking ever more vulnerable. The Pacifica is toast, the 300C/Charger may have seen their best days, the Sebring will flop and the Challenger will share a pie with the Camaro and Mustang. Chrysler’s drying minivan teat is genuine cause for concern. It’s time to face facts: thanks to the transplant's persistence, there are no more cash cows.

With cars and trucks piling up, it’s looking like the Daimler/Chrysler merger/takeover is on the skids. Mergers are always tricky in the auto business. It can work– if both sides put forth an effort. Unfortunately the DCX mess looks rather familiar…

There are three kinds of companies in the automobile industry: mass market manufacturers (e.g. Toyota and GM), niche players (e.g. Subaru or pre-acquisition Saab) and luxury automakers (e.g. BMW or Porsche). The first depend on volume, the second rely on selling a narrow product range at a premium price and the third must unload large numbers of high margin vehicles (or a limited run of extremely profitable products).

Obviously, mass-market makers have the most financial clout. They can afford to buy-up other companies; usually cash-strapped niche makers. Occasionally, one mass-market automaker will absorb a weaker one, either for marketing power or additional production capacity. These acquisitions usually work out– though the smaller party is completely dominated/ annihilated by the buyer (Toyota/Daihatsu, GM/Daewoo, Volkswagen/Skoda, etc). But there’s another type of acquisition: when a “mass-luxury” brand buys up a downtrodden mass-market player. BMW tried it, and the results were disastrous. 

In the early 1990s, automakers were flush with cash. BMW, one of the smallest independent world producers, was feeling vulnerable. (Car sales move in cycles; the lower end of the luxury market is always vulnerable to shrinking demand.) Without entries in the mass market, BMW felt a need to get in with a volume manufacturer. They approached Honda about a partnership– and were rebuffed. Barely changing tack, BMW went after the closest thing to Honda they could find: Rover.

The Rover Group was comprised of the remnants of several famous British carmakers. The company had been struggling since the late ‘60’s. It was on government life-support through the ‘70’s and ‘80’s.  At the time of sale, British Aerospace owned Rover (they bought it for a song from the British Government). It was profitable. Yes but– a closer examination should have set off alarms.

By then, Rover was selling tarted-up Hondas to counter their loss of market share. It no longer had the manufacturing capacity, overseas dealers or engineering staff to play in the mass market. BMW thought they were buying a cut-price Ford. What they got was a second-rate Acura.

After buying Rover from British Aerospace (and ousting Honda), BMW got down to cases and discovered just how deep the rot was. Rover’s only remaining mass-market cars were over 10 years old (and had never been world-beaters). The Honda-based units slotted just below BMW’s existing line, and several were due for replacement. Land Rover was at least famous and profitable, but quality problems were rife. Instead of being a window into the mid-market, Rover became a money-pit.

After a few years, BMW took the new MINI and ran. They sold Land Rover to Ford and “gave” the other new car– an up-market sedan called the Rover 75– to a group of investors along with a large “loan.” In the end, Rover died, Ford got Land Rover (still with quality issues) and BMW got one nice selling niche car with an English factory to match– but no mass-market presence and huge financial losses.

Daimler’s purchase of Chrysler is eerily reminiscent of Bimmer’s British misadventure. At the time of purchase, the “Crisis Corporation” and Rover both had shrunken market share, with profits depending on a few up-market vehicles. Neither had significant fleet or foreign sales (though being confined to the US market beats being stuck in England). Both had profitable niche off-road makers in tow. Both even had a Japanese “partner” (though Rover was dependent on Honda, Mitsubishi leaned on Chrysler). Neither company had a significantly profitable presence in the heart of their home market. 

Once bought, Chrysler developed a “hot” set of cars in high-end niches (the new 300 triplets) using previous-generation Mercedes technology. And then… nicht mehr. Although Chrysler and Mercedes will continue to share “unseen” parts and back office functions (until they don't), cross-brand platform sharing has been declared verboten. "A Mercedes will remain a Mercedes,” Daimler Chrysler’s head of development told a German union gathering yesterday. “And may not share a platform with anyone [save Maybach]."

Thus the new Chrysler Sebring is based on a warmed-over Mitsubishi platform, the company’s getting slaughtered in the small car market, the once profitable minivan segment is shrinking for want of innovative product and Dodge’s truck market is under siege (and just got news of layoffs). Through all this, despite their investment, Germany seems happy to watch its US “equal” tie an American made noose around its neck. In fact, it’s only a matter of time before Chrysler’s German masters sell off Jeep and/or the whole shooting match.

Of course, there is a wider lesson here: by the time a mass-market automaker is weak enough to be bought it’s too weak to compete. And eventually dies.

About three years ago, GM CEO Rick Wagoner made a critical decision about his company’s products. Rather than radically revamp The General's full-sized SUV’s or divert serious time, energy and money into small car development, Rabid Rick decreed that GM should rush through a “refresh” of their current Tahoe, Yukon, Suburban and Escalade. At the precise moment that these new[ish] four-speed gas guzzlers arrived, safety, environmental and fuel prices whacked the genre. Strangely, both pundits and PR flacks were nonplussed. These things are good. They’ll sell. How wrong can you be? Oh, I’m sorry. Didn’t you hear? The GMT900’s are a flop.

Perhaps you remember the hoopla surrounding the GMT900’s. I do. And I remember the scorn, derision and invective aimed at this website when we declared GM’s new[ish] SUV’s a mediocre misallocation of effort. Well read ‘em and weep. Some 120k full-size GMT900 SUV’s are out there, somewhere, waiting for customers willing to pay $5k or more below list. The Chevrolet Tahoe, for example, currently lingers on dealer lots for 77 days. Many of these are ’06 models. Hence GM’s decision to halt GMT900 production in January for two weeks. After that they’ll reduce throughput by over ten percent.

When the GMT900’s debuted, GM Car Czar Bob Lutz confidently predicted that his employer’s new[ish] behemoths would capture a profitable slice of the diminishing pie. So far this year, the SUV market has contracted by 24%. In that time, GMT-900 SUV sales fell 16.9%. (Toyota's large SUV sales fell 23.7%, but we're only talking about the difference between 40k and 30k units.) Meanwhile, overall, GM's light truck sales sank 11.6%, while Toyota's climbed by 12%. So… great landing, wrong airport.

And now Maximum Bob has become maxim Bob: the poster child for that old saw about repeating your mistakes 'cause you were busy dreaming of flying combat jets against the Ruskies when you should have been paying attention in history class. This time out, Maximum Bob’s telling the world that the automaker’s GMT900-based pickup trucks– upon which his boss said The General’s recovery depends– will rack up over a million sales this year, and more next.

Yes, the same man who tut-tutted the demise of the full-size SUV two days before Hurricane Katrina decimated the Gulf region’s gasoline production predicts that “pickups will pick up” a few hours before the Fed warned that the U.S. housing market faces a “substantial” cold spell. A significant housing slowdown is the pickup truck equivalent of a category five hurricane. And The Vice Chairman of Global Product Development still can’t see it coming.

Now don’t get to thinking Maximum Bob is spinning a tale to bolster his beleaguered troops/GM’s stock price. This man is deluded past the point of crazy-like-a-fox credibility. To wit: when pressed on the impact of the deep discounts offered on pickups produced by The Blue Oval and the Dodge Boys, Maximum Bob admitted "This level of discounting on the pickups is uncharted territory… But the good news is that incentives of $7,000 to $8,000 a vehicle is not sustainable.”

Huh? Is Maxi Bob saying his competitors are about to go under? Or that they’ll come to their senses, stop discounting and use their unsold vehicles for artificial reefs? OK, so what about next year’s debut of the new Toyota Tundra? Surely, that's going to put the hurt on GM’s pickup truck margins. “The Tundra will take share, but [it] will steal from the older Tundra and from the Tacoma," Lutz said. "I don't think we'll see that much switching from American truck owners to the Tundra." Now that’s what I call confidence! Or, more accurately, complacency!

Even if the Silverado and Sierra somehow manage to cling to their current volumes in a collapsing market, the General’s margins are about to get hammered. Neither Ford nor Dodge can afford to surrender market share; they’ll do are doing will continue to do whatever it takes to keep the pickup pipeline flowing. And Toyota didn’t build that truck plant down in Texas just for show. If they have to slice prices to move the metal, they can surely afford to do so. And by God they will.

This, folks, is Rick’s bad. Instead of holding off and building game changers– vehicles that can recover lost ground with undeniable, unassailable superiority, GM’s CEO thought it best to get the new shit out the door as fast as possible, regardless of its ability to wow the non-faithful.

One wonders what would have happened if Rabid Rick Wagoner had sat down with his execs and said “Build me a truck that gets 25mpg in the city, feels like an Audi inside, tows more than anyone else and outlasts Ron Jeremy. I don’t care if you have to stick a hybrid synergy drive under the hood. I don't care if we make a plug nickel. Just do it.” Or, alternatively, "Lutz, you're fired."

November’s sales figures are out, and FoMoCo’s treading unfamiliar waters. For the first time since, well, ever, Dearborn’s darlings find themselves off the sales podium. The General, Toyota and both parts of the DCX German-American hybrid surpassed last year’s sales totals. Despite pre-Christmas gains north of the border, Ford’s U.S. sales sank nearly 10%. Their declining market share dropped them into fourth place by total sales volume. “This is an area, frankly, of disappointment,” George Pipas, Sales Analysis Manager for Four’d pronounced. “We had our sights set higher.” 

On the heels of November’s results, CEO Alan Mulally’s mob announced that an additional 15k units aren’t going to see their way off of Ford’s leveraged lines. If the slowdown was due to the void left by 38k clock-punchers as they punched out permanently, hey, no problem. But these cuts were made this month; before Ford’s assembly liners leave the building. To justify the increased production reduction, Glass House representatives reiterated their Chrysler anti-matter approach: match supply to demand. Or: we ain't gonna go out and "chase sales simply to pump up [the] volume."

Yes, well, a dozen more FoMoCo models equipped with an additional thousand in Mulally minted bonus bucks beg to differ. In an effort to, uh, chase sales and pump up the volume, Dearborn is using the only sales strategy with a hope in Hell of moving the moribund metal. Buyers can now score up to $7k in cash rebates on nineteen different models. Ford’s hoping bribed consumers will blow the dust off the over 90-day inventory and end Ford’s decade long market decline.

There are plenty of reasons why the situation sucks. Now that the long forgotten (by Ford designers) Taurus has met its matador, fleet sales no longer offer a buffer against retail implosion. What’s more, sales of the profitable Explorer have rolled-over and died. November was the worst month for the former mainstay since the SUV’s introduction in 1990– down some 55k units from 2005. And to be blunt, the Edge is arriving a day (or 365) late and a dollar short.

Even with all that leveraged capital keeping the company coffers full (for now), Dearborn’s December needs to show some positive market share movement– even if the net result is a negative bottom line. Banc of America analyst Ronald Tadross and friends indicate that every point of market share Ford loses behind the couch sucks a billion bucks in operating profits away from Ford’s ‘09 return to profitability target.

According to small Ron, “Anybody can close some plants and fire some people… Right-sizing is almost self-defeating if you don’t fix the business.” Mulally’s movements, while dramatic and sweeping, have not lead to the Glass House re-org that is badly needed to meet its profit obligations. Analysts call for public deadlines for global product integration, transparency regarding reducing purchasing costs, and an abandonment of incentive based sales (that render resale values lower than Ford’s S&P rating). As if.

One item on the money men's to-do list that may actually occur: the long awaited deconstruction of Ford’s overseas imbroglio: the Premium Automotive Group (PAG). Recently released Wall Street whiz kid Kenneth Leet is rumored to still be on top of the sale of Bond’s favorite Q-toy provider (his pockets awaiting relining). So much for Aston Martin. But what of Jaguar? Hidden within the legalese of FoMoCo’s disclosure: a clause that lets the cat out of the PAG.

In fact, Jaguar and Land Rover were one of the few Ford “assets” exempted from their recent collateral catchall (which includes their logo and Bill’s bronze desk sign). In Jaguar's case, this could be due to the fact that mortgaging nothing generally renders nothing. Still, flogging the feline to anyone willing to take it off Ford's hands makes a lot of cents. As the Brits say, when you’re in a hole, stop digging. Besides, a Jaguar sell-off would send a clear and welcome signal to skeptical observers (i.e. Ford stockholders) that the automaker is finally serious about getting its house in order.

The sum of all fears seems to be $4b. Although that's a bit low for a multinational automaker's mission critical operating liquidity, Ford is bound and determined to keep its head above this level. To keep on truckin’, Dearborn is quite literally risking it all. Ford’s beancounters have increased the company’s collateralized credit facility from $18b to near as dammit $23b. At the same time, the year’s largest bulk of stock-bond hybrids have hit the trading room floor.

While these bold moves have bought The Blue Oval Boyz a bit more time, it doesn’t do anything to change the fundamental problems challenges besetting Henry Ford’s legacy: products, brands, dealers and unions. Especially product. If Ford doesn’t find some automotive magic bullets, if it can’t build some tangible, tantalizing new toys in double quick time, the company’s new-found leveraged life could prove to be nothing more than borrowed time.

Germans don’t like the phrase “assisted suicide.” The preferred term is aktive Sterbehilfe (active assistance in dying). Apparently, it's not a crime. Euthanasia is a crime. Assisted suicide is not. However you slice it, it's clear that this “activity” is not unknown in Germany’s corporate culture. While DCX’ leadership keeps insisting they want to nurture the Chrysler group back to health, they seem Hell bent on helping it meet its demise.

DOA: Joe Eberhardt. In the summer of 2003, the Dark Lords of DCX appointed Herr Eberhardt Chrysler Group Executive Vice President – Global Sales, Marketing and Service. From the time he arrived, everything Jolting Joe did seemed to reflect a callous disregard for his employer's survival. In three years, Eberhardt managed to turn a company on the verge of a renaissance into an organization standing on the precipice.

For one thing, Eberhardt approved the two worst automotive ad campaigns in recent history. The cartoonish “Ask Dr. Z” commercials succeeded in making a fool of both his boss and his boss’ company, while the “WTF?” Dodge Nitro spots almost achieved the impossible: slowing sales of a hot-selling product. Joe was just getting warmed-up. When sales started tanking, Joe started banking. By reneging on Lee Iacocca’s promise not to build vehicles regardless of customer demand, Eberhardt’s Chrysler boldly went where Chapter 11-aversive executives fear to tread.

And then Eberhardt plunged Chrysler Group deep into rebate Hell. The company’s incentives are now double the industry average– and growing. And if that wasn’t enough to convince Chrysler’s German masters that it was time to confiscate Joe's belt and shoe laces, Eberhardt unleashed his pièce de résistance: alienating the entire Chrysler/Dodge/Jeep dealer network. Never a one for the subtle approach, Joe forced dealers to take vehicles they couldn’t sell, then insulted their sales abilities when they didn't sell them. No wonder the President of Southfield Chrysler said “Joe needs to work on his people skills a bit.”

In this case, there’s no need for the old “Did he jump or was he pushed?” debate. Think of Mr. Eberhardt’s corporate demise as aktive Sterbehilfe and call it good. But where does Jolted Joe’s departure leave the automaker with enough unsold inventory to give every person in the state of Wyoming a new vehicle (assuming they’d want a Chrysler product)– not including the suspiciously undisclosed number of vehicles they have stashed away in that infamous sales bank? Fleet sales!

When reporters asked Chrysler's [remaining] execs why they're offering both a soft top and a retractable hard top on the new Sebring, the expense accounters said the ragtop was a “lower cost alternative” for the rental market. You don’t have to be a Taurean to know that positioning a new model in the resale toilet from the outset isn’t a very smart move– unless you’re trying to make dumb ones. Hmmm.

While we’re second guessing management motivation, those of you who’ve wondered if Chrysler’s got a cunning plan to build up the sales bank as a hedge against UAW actions needn’t. If that were the case, the company wouldn’t be overproducing and backlogging Rams and Pacificas and other models that aren’t selling; models that will continue to wither against fresh models from GM, Ford and Toyota. If riding out an extended strike was the plan, Chrysler would be would amassing Calibers, Wrangler four-doors and other popular models.

How’s this for a theory: Daimler-Benz wants Chrysler to fail. There were plenty of German execs who thought the “merger of equals” sullied MB’s good name. Perhaps powerful factions within DCX denied Chrysler the resources it needed (e.g. advanced engineering) so that the American automaker and its German supporters would be hoisted by their own petard. Maybe they actively worked to destroy Chrysler so they could fill the power vacuum left by the automaker's eventual bankruptcy/sell-off. It wouldn’t be the first time that one part of a large company plotted against the interests of the other, in a fight to the death for control. 

Maybe it didn’t start that way, but I bet that's the way it is now, as executives scramble to diassociate themselves from DCX' all-American adventure. I mean, why did Dr. Z and his zealots stand around so long, watching Eberhardt drive Chrysler over a cliff? Surely someone above him should have yanked Joltin' Joe out of the game a long time ago. You could even say that Joe's superiors are as guilty as Eberhardt for Chysler's declining physical and mental health. Oh… that’s right. They can’t be guilty. That’s not a crime in Germany.

Left Coast do-gooders? Take a hike. East Coast intellectuals? On your bike. The Chevy Silverado doesn’t give a damn about you and your fancy gas electric cars. GM’s new[ish] pickup is a rolling tribute to the working class people who form the backbone of our country– as defined by the musical stylings of John Cougar Mellencamp. More to the point, a good old Harvard boy named Rick Wagoner says his company’s turnaround depends on the Silverado. So are its flat-bedded shoulders strong enough to support the world’s America’s largest automaker? 

I recently received a review of the Cadillac BLS by a South African scribe. While the writer responded to my revisions by retreating to the pub, I couldn’t stop thinking about the obscure object of his ire. The execrable BLS– a Saab 9-3 reskin with neither style nor grace– was born in the middle of GM’s so-called product renaissance. BLS sales projections started at 20k units per year, then fell to 10, then seven. And now I learn that instead of killing this poor-selling, po-faced, brand-defiling half-breed, GM has appointed one Wolfgang Schubert to “save” the BLS.

In case you thought GM might send in a car guy to make the BLS more competitive, please note that Schubert hails from GM's Brussels office, where he “coordinated European Union affairs.” According to The General, increasing the BLS’ fleet and leasing sales is the red tape wrestler’s main task. James Vurpillat, Cadillac's director for international marketing and brand development, confidently predicted that Caddy will sell 3k BLS’ to the fleet market– roughly twice the number of mock-Caddies Trollhatten will produce this year.

Many of the GM faithful will read this sad tale of misbegotten motorcars and misplaced marketing and condemn me as an eternal pessimist, blinded by a relentless search for the dark clouds inside The General’s silver lining. Why focus on one crap car [not] sold to Europeans and South Africans when there’s so much good news flying through the media ether? For example, GM has finally sold 51% of its GMAC financing unit, adding $14 billion to the corporate coffers over the next three years. The cash ought to give GM CEO Rick Wagoner’s turnaround some much-needed breathing room.

OK, Generous Motors’ current cash burn is producing neither heat nor light, the last piece of furniture has just been thrown in the fire and the temperature (i.e. market share) is still dropping. But hey, November sales are up six percent! We’re talking double digit increases in the sales of GM’s high profits trucks and SUV’s! OK, that’s compared to a cataclysmic ’05 and Toyota pulled further ahead with a 22.8% sales increase. But hey, the new Lambda-based crossovers are coming! OK, GM’s chances of conquesting a transplant customer with their me-too, late-to-the-party CUV’s are smaller than the decreased margins vis-à-vis GM’s full-sized SUV’s.

But hey, costs are coming down! Workers are leaving! Oh right, so is Kirk. Yes, there is that. When GM’s largest private investor says screw it, I’m out of here– banking a mere $100m to [partially] cover his lawyer’s fees– you’d be forgiven for thinking GM is a lost cause. Lest we forget, Kirk Kerkorian had his main man Jerry York on GM’s Board of Bystanders, snuffling through the books. Oh, and about those books… GM is still the focus of seven SEC investigations.

And what about that Delphi thing? You know; the bankrupt former GM subsidiary and current parts supplier that’s determined to suckle on GM’s tit even if it kills them, GM and the UAW. Despite enough legal extensions to add a couple of chapters to Kafka’s The Trial, it’s still not sorted. Experts reckon that if Delphi goes off-line for a month, the corporate mothership will founder. At the same time, a sharp up-tick in domestic gas prices would strangle demand for GM’s mission critical cash cows. But hey, GM’s products are getting better! Better interiors, better mileage, better design!

And where are these mainstream products that will kick the transplants’ collective ass and save GM? Coming. Now it’s dual-mode hybrids. Or was that plug-in hybrids? Hydrogen fuel cells? Flex fuel? Diesels? (No, not diesels.) Anyway, when the good stuff arrives, will it be better than the competition, or somewhere closer to just about as good? The truth is GM needs a series of grand slam home runs, and the hits ain’t happening.

You don’t need to drive a BLS to know that GM isn’t keeping up. In fact, Rick Wagoner’s administration has consistently bet on the wrong horses– from ill-advised foreign alliances, to poo-pooing hybrid technology, to putting all its eggs in an SUV-shaped basket, to gently refreshing rather than boldly re-imagining its products. While Wagoner is right to attack GM’s unsustainable cost base, all his company’s structural problems flow from product-related failures.

Maybe I am a pessimist. But the GM faithful need to read the following exchange and ask themselves a simple question: if GM’s turnaround is doing so well, why can’t the man at the helm spread a little love?

Automotive News: When would you realistically like to see North America return to profitability?

Wagoner: As soon as possible.

Automotive News: Do you have any kind of target that you'd like to share?

Wagoner: Not that I'd like to share.

When the new[ish] Chevrolet Tahoe SUV was released, reporters asked GM Car Czar Bob Lutz whether rising gas prices would discourage SUV buyers from jumping into The General’s gas-guzzling truck. ”Rich people don’t care about gas prices,” Lutz remarked. Yes well, it’s time for Maximum Bob to take a class in Remedial Marketing. It’s a five minute course that starts with the Bell Curve. 

Place potential car buyers along an axis showing unit price and you’ll get a big Bell Curve shaped hump in the middle. If you want to be the world’s largest manufacturer of automobiles– defined as the company that sells the largest number of cars per year– it really doesn’t matter what rich people think. There’s no way they can generate enough profits to make your nut. You have to play the law of averages.

The Big Three fell off the curve at the end of the ’80’s when they began chasing [imagined] high-margin niches filled with wealthy people. The more high-priced, high margin trucks and SUV’s GM, Ford and Chrysler sold, the less they cared about the millions of financially challenged customers who helped create their companies.

In this they were not alone. Even VW (Peoples’ Wagon!) neglected smaller cars in favor of big and expensive platforms. VW quality nosedived as the smart eggs within their organization set about building Phaetons, Touaregs and a limited edition ultracar, the Bugatti Veyron. Today they’re all fighting to claw their way back to the mean– before it’s too late.

Probably suspecting a trick (you’re ceding us the mass market?), Toyota and Honda took a good close look at the Car Customer Bell Curve and arrived at a very different conclusion. They asked: ”What if we offer affordable cars to the people right smack in the middle of the graph? A car range with just a touch better features, quality and service than similar servings from the domestics?” Rocket science!

We’re looking at two strategies here. Toyota: build affordable transportation for the masses at a quality level that slightly exceeds expectations relative to price. GM et al: build oversized, under-engineered and fuel inefficient cars for people who don’t care about money while palming off sub-standard cars on mainstream customers. Is it any wonder that the truck-crazed domestic manufacturers lost mission critical market share to the transplants? Lutz and his cohorts failed to recognize that the vast majority of potential customers were simply looking for affordable quality transportation.

Having taken their eyes off the chart, The Big Two Point Five are now paying the price. While they sent their best resources into an imagined land of promised gold, the transplants stuck to looking squarely at the needs of mainstream of car buyers. This focus also helped them gaze into the future. They asked themselves a question Detroit didn’t even consider: ”How do we keep our cars affordable as fuel costs and environmental pressures increase?”

Here’s Bob Lutz on the same topic back in 2003: ”It just doesn’t make environmental or economic sense to try to put an expensive dual-power train system into less expensive cars which already get good mileage.” Clearly, Maximum Bob’s take on good mileage is different from a Prius owner’s.  Lutz belief that gas would go back under $2 a gallon certainly didn’t help his ability to gauge GM’s ”new” target market. And then GM was forced to cough up gas rebates for Lutz’ hulks, covering the spread in gas prices over $1.99 to the tune of $1000. These days, Bob’s a hybrid convert– who’s short on product.

To get back into the real game, the domestics will have to party back in The Land of Averages– provided they want to remain on the list of the world’s top five automobile manufacturers (the last time I looked it was still a priority). In this effort, there are no shortcuts.

In Ford’s case, success will require an immediate  return to the reason behind Henry’s decision to create a Model-T assembly line: to build a ”reasonably priced, reliable and efficient car” that’s ”easy to operate, maintain and handle.” Hey; that sounds a lot like how people describe Toyota’s products today.

Mounting a convincing return to the essential mass market is going to be a lot harder than simply inventing imagined premium niches (I’m looking at you Chevrolet SSR). The domestics will have to make their cars both relevant and affordable in an age where everyone, including the supposedly oblivious rich, have woken up to the true cost of energy. An age where the competition is creative, well-funded and focused. But GM et al can only make a start if they stop applying yesterday’s problems to tomorrow’s solutions.

So, the lesson for today: you can’t please most of the people most of the time if you don’t even try.

Historically speaking, Chrysler’s desire to keep pace with Ford and GM has kept the company perched on the brink of disaster. In his magnificent Motown expose “The Reckoning,” author David Halberstam devotes a couple of chapters to the "Crisis Corporation's" perennial woes. Halberstam describes the corrosive effects of the automaker’s sales bank, where vehicles were built, registered as sold and held in vast lots– until reality caught up with book-keeping. The practice was eventually abandoned. As you’ve just read, it’s baaaaack.

The idea of the “sales bank” is logical– in theory. Instead of constantly slowing and speeding production to meet varying demand, factories work at full capacity year-round. Any unsold cars are “banked” in storage lots until demand picks up. This supposedly eliminates carmakers two largest headaches: the need to run near full capacity (to maintain low unit costs) and the cyclical market. What made the bank deadly in practice: overstated sales projections. “Banking” just made things worse.

The problem with “holding” the cars– beyond the storage cost and resulting deterioration– was the way the practice warped Chrysler’s relations with its dealers. With a huge pool of cars to choose from, there was little incentive for dealers to place ordinary orders from the factory. Instead, they’d simply pick up their sales inventory when the manufacturer’s lots got too full– at fire sale prices. Unfortunately, selling worn vehicles did little to increase demand for cars, which led to more “banking.”

Lee Iaccoca killed the Chrysler’s sales bank shortly after he assumed power, helping shape Chrysler’s comeback. The new sales bank has been going on for about a year, under the not-so-watchful eye of Chrysler Group Prez and CEO Dieter Zetsche. While both Ford and GM have bitten the bullet– making major production cuts and jettisoning workers to [try to] match production to the reduced demand– Chrysler has continued running their factories and “banking” the excess.

There is a reason for Chrysler’s sales bank “renaissance.” Under present contracts, United Auto Workers (UAW) members are paid virtually the same whether they are working or not. Back in the ‘70’, they would have simply collected unemployment. What hasn’t changed: all the reasons the bank was a bad idea. In fact, the problem's gotten worse.

This time, Chrysler dealers aren’t cherry-picking for bargains. Current dealer inventories for The Big Two Point Five have been stuck at almost 100 days for months– when half that amount is seen as dangerously excessive. DCX has been stuffing “money in the trunk” on old and new vehicles, and the dealers aren’t even sniffing the bait. There are now TWO bloated inventories that need reducing: Chrysler’s AND its dealers’.

Demand for these vehicles is unlikely to increase anytime soon. The natural market cap for the 300/Magnum/Charger seems to have been reached (the initial rush is over). The Sebring etc. are being replaced (as soon as they can get the dealers to take some). Minivans and trucks have been DCX’s profit centers for decades, but the minivans have been feeling new pressure from Hyundai/Kia in the economy market (Toyota and Honda have already skimmed most of the cream).

As for the trucks and SUVs, the future isn’t rosy. The Durango gets Suburban-level mileage with sub-Tahoe utility, and it just got a posh sibling that made an Aspen of itself. Being number three (and oldest) in the pickup market is like wearing a bulls-eye to a shootout. In short, DCX is likely to continue to lose market share in the near future.

If the sales bank is such a huge mistake– all the problems of fleet sales without any of the revenue– why does Chrysler persist? One theory making the rounds: Chrysler’s German masters are loathe to admit that their hand-picked team can out-screw-up the Americans– at least until the evidence becomes impossible to ignore (instead of merely visible from low Earth orbit). Another theory: the current regime believes their own hype. The sun will come out tomorrow, the sales bank will dry up, new products will erase the memory of the old, and all will be well. 

The third and most intruiging suggestion is that the jobs bank is a not-so-secret stash of vehicles which allows Chrysler to play hardball with the United Auto Workers (UAW) in the run-up to '07 contract talks. This theory posits that when the UAW refused to grant the automaker the same [meager] health care givebacks it blessed upon Generous Motors– "pattern bargaining" up but not down– Chrysler began churning out product in preparation for a UAW strike.

If true, if The Dark Lords of DCX tell Big Ron's bluster boys to go sing, Chrysler would have half a year’s worth of product to keep dealers happy. Problem is, that’s not enough. Besides, when something looks like either a cunning conspiracy or simple stupidity, it’s usually stupidity. But wouldn't it be funny if a combination of stupidity and luck ended-up saving Chrysler's bacon?

Just a few years ago, Walter Chrysler’s namesake was riding high. The “partnership of equals” between America’s Chrysler Corporation and Germany’s Daimler-Benz bore fruit in the form of the critically acclaimed Chrysler 300 and Dodge Magnum. “Hemi” was the performance buzzword. “SRT” indicated the performance deal of the decade. Fast forward to ’06 and everything Chrysler’s doing seems strangely, willfully, specifically designed to push the automaker to the brink of self-annihilation.

Post-Katrina, when the market for pickups and SUV’s tanked, Chrysler’s management kept the production lines humming. As of early November, the North Jefferson Assembly Plant in Detroit (Grand Cherokees and Commanders) and the Windsor Assembly plant in Ontario (Pacificas, Grand Caravans and Town & Countries) were both working overtime shifts, producing more and more moribund vehicles. The result has been as frightening as it is predictable: excess inventory on an epic scale. We’re talking 500k unsold vehicles.

The ungainly Jeep Commander sits on dealer lots for 157 days before selling. The gainly Jeep Grand Cherokee remains welded to dealer pavement for 120 days. The answer to a question no one asked, the Chrysler Pacifica, stays put for 142 days. The once mighty Dodge and Chrysler minivans hang around 133 and 117 days respectively. In total, excluding fleet sales, Chrysler has 126 days of unsold inventory (compared to Toyota’s 30). And still the production lines keep flowing.

What’s worse, this super-abundance of slow-selling models joins a glut of last year’s models. Roughly 45 percent of the vehicles at Chrysler and Dodge stores are ’06 models. In comparison, ‘06’s make up less than 20 percent of GM’s and about 25 percent of Ford’s current inventories. But wait! This figure doesn’t include all the cars and trucks in DCX’ increasingly-infamous “order bank”: a repository of vehicles that dealers won’t/can’t accept, which drains DCX of hundreds of thousands of dollars a day in storage costs.

And the hits keep not happening. The majority of the machines in Chrysler’s sales banks are base-level vehicles without the equipment most buyers seek. In the words of the dealers, Chrysler is giving them “weirdly packaged minivans” and trucks spec’d-up with “every mismatched combination and permutation of features” they can make.

No wonder Chrysler is resorting to bribery to try and move the metal. They’re offering dealers $200 for every 2007 model they take above their normal allocation, and $400 for every 2006 model they accept from the sales bank. No sale; the payments don’t even cover dealers’ interest payments on the increased inventory. Chrysler Group is also attempting to bribe existing and potential customers with $1k coupons mailed to 3.4m consumers. Will a one percent response rate even cover the postage? Watch this space.

The payment may help ameliorate the negative effects of the company’s financing deals. Customers can now lease a fully-equipped ’07 van or truck for just a few dollars a month more than the lower-line ‘06 models. For another, they’re using bully-boy tactics to cram unsold cars down dealers’ throats. A $3m lawsuit in NY federal court claims Chrysler tried to force one of its larger dealerships to stock cars it never ordered, and then gave competing dealers unfair price breaks.

The situation is so horrific that industry and financial analysts are calling for DaimlerChrysler to divest itself of the Chrysler Group– before the American automaker destroys its German host. Despite Dr. Z’s repeated declarations that Chrysler is not for sale, several important investors agree: DCX should dump Chrysler as soon as humanly possible. OK, but— several analysts put the Chrysler Group’s worth at “zero or less.”  In the words of one investment banker, “No one would buy it… perhaps the Chinese would take it if they didn’t have to pay anything for it.”

Moody’s Investors Service has already downgraded DCX’ debt rating once and may do so again. “We would certainly consider a different rating… if Chrysler were no longer in the group.” JP Morgan remains convinced that management patience towards Chrysler has “worn thin and increases the likelihood that DCX will reduce exposure to Chrysler.” It’s the investment community’s equivalent of yelling “jump!” to someone standing on a ledge.

Clearly, Chrysler needs to reduce production until dealer inventories return to manageable levels, and rethink their whole product portfolio. At the same time, the UAW must agree to some contract concessions. If Chrysler can’t cut costs and quickly make production changes– including temporarily shutting down entire assembly lines– they’ll keep driving the company and their union workers into inventory bloated oblivion. Despite recent “cut and run to China” moves, Chrysler’s long-term survival ultimately depends on unpicking this Gordian knot.

Of course, leaving this difficult endeavor to DCX’ current executive team may not be a wise move; the entire situation reeks of mismanagement at the highest possible levels. Heads must roll (we’re looking at you sales chief Joe Eberhardt), or nothing will change. Meanwhile, Chrysler’s woes raise a troubling question: if DCX can’t turn this ship around, what effect would bankruptcy have on the rest of Detroit’s home team?

To combat the commonly held (if accurate) belief that FoMoCo’s product pipeline is drier than a Vermouth-free martini, FoMoCo recently unveiled the “Showroom of the Future.” Ford ushered retirees, clock punchers and white collar grunts into the Cobo Arena for a glimpse at what may (or may not) be the “most important new Ford.” While they weren’t invited to sample Ford’s four-wheeled corporate Kool-Aid, the Detroit News reported that the attendees were suitably impressed. It may not have been enough to take the edge off the Edge’s delayed debut, but it did reveal a bit more about Ford’s immediate prospects.

The headline: Ford will [finally] re-enter the US small car market with a 1.8-liter four-door, four-pot B-segment vehicle. Amongst the sixteen other vehicles on display, notable Hail Mary passes included the not-so-secret Fairlane people mover, an in-yer-face F-150 refresh and an Explorer designed to not explore. Oh yeah, and some [more] pimped-out ponies.

Under product czar Derrick Kuzak, Ford’s new “global system” will ensure that these still wrapped presents make it to market faster than before. While that’s not saying as much as was perhaps intended, the Zephyr-driving twenty-eight year Blue Oval veteran revealed that the accelerated go-go gadget car process relied on CEO Alan Mulally’s global approach. By “eliminating redundancies, complexity and waste” the new system is set to shave eight to 14 months from the current gestation period.

Yes, well, this new system won’t be in place until the end of 2008. So Mark Fields’ year old promise of a bitchin’ B-car will come to fruition under a new US Prez. In fact, the hit of Ford’s secret show won’t grace population-reduced production lines until 2009 or 2010. It seems that learning (from the past or otherwise) is a slow and painful process for Blue Oval brass. With three to four more years of sales, the Japanese (and maybe even homegrown) competition will again have achieved– or, more precisely, cemented– segment dominance.

No surprise there. The Japanese have a long history of finding and then dominating markets their competition can’t see. For example, the transplants invented the CUV because they A) they lacked viable truck frames to create “proper” Gaijin SUV’s and B) Japan’s too damn small for them anyway. By the time the SUV-reliant domestics set their sites on the crossover market, the transplants had built a virtually unassailable lead in the hottest “new” segment.

SUV refugees currently have four dozen mostly Japanese cute-utes to choose from. Many more are on their way. As this segment is hitting its stride, Ford’s current most important new vehicle is the crossover-come-lately (in more ways than one). As before, while FoMoCo worldwide is re-tooling to become one nation under Al’s groove, the market will look to Japan, Korea or even China for the next big thing and leave Ford even closer to the Edge of bankruptcy.

In fact, segment leadership is becoming increasingly important to overall profitability. With slowing growth in the U.S. economy and the pinch of a housing slump being felt in mega-markets like California, automakers seeking a product led turnaround face a distinctly uphill battle. A Michigan based market research firm called IRN figures that 2007 could be the worst year for new car sales in a decade. They predict that roughly 300k less units will leave dealer lots, as the haves have less.

To combat slumping market trends, Ford recently introduced a massive buyout program, which expired Monday night. According to this morning's papers, 35k United Auto Workers (UAW) have decided to take Mr. Bill's money and run. This is excellent news. Trimming half of the company's active UAW workforce will bring FoMoCo's payroll in line with existing demand– provided the workers don't change their mind before the programs kick-in, and Ford's domestic market share doesn't [continue to] sink below their goal of a sub-Toyota 14%. 

Of course, that's down from 25%. And the mass exodus is an incontrovertible sign of just how bad things are down in Dearborn. While the departed (including as many as 10k white collar workers) will relieve much of the ongoing pressure on Ford's bottom line, the payouts will add legacy costs and still put a big old minus sign on Ford's corporate ledger– and soon. 

To bolster for this mega-hit and pay for the new “global system,” Ford done gone and bet the farm, using anything that was (or wasn’t) nailed down as collateral for $18b in new financing. While the severity of “all-in” asset restructuring indicates just how serious Dearborn’s darlings are about this turnaround, it’s still a huge gamble. Robert Barry of Goldman Sachs reminds us that most of these newly borrowed bucks will be burned by the Way Fordward.

Even with $38b in hand, Mulally’s Global Overhaul may prove to be too costly for a company that’s consistently late to the game. It’s entirely possible that the Ford showroom of the future will be a very empty place indeed.