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Imagine Detroit's Big 3 -- 10 years out
While it'll be a long, tough haul, experts say good times can return for GM, Ford and Chrysler.
October 12, 2005: 2:57 PM EDT
By Chris Isidore, CNN/Money senior writer

The following futuristic scenario is based on a series of interviews with auto executives and analysts. While they all warned that none of the changes projected are certain, they also believe that if troubled U.S. automakers make some key moves, the companies could see a relatively quick turnaround.

NEW YORK (CNN/Money) -- From the perspective of 2015, it's tough to remember that only a decade ago, in 2005, the nation's automakers were just about on the ropes.

As 2015 comes to a close, Detroit's Big Three are all posting solid profits in their car and truck operations at home, higher sales and profits from overseas than seemed possible a decade ago, and a product lineup that's just about the envy of their Japanese competitors.

Back in 2005, General Motors (Research) and Ford (Research) were both losing market share and tons of money on their core North American auto operations. Practically the only way they could get cars moving quickly out of dealer lots was to offer heavy incentives and below-cost "employee pricing."

DaimlerChrysler's (Research) Chrysler Group was doing a little better but it was still a distant No. 3 in danger of becoming No. 4 behind fast-charging Toyota.

Today the three have just a slightly bigger slice of the market than a decade ago. But rising sales across the industry have helped them, along with some key new products and alliances. And new and refurbished plants finally helped the automakers get costs under control and produce cars and trucks with far fewer workers.

The modern Big Three assembly line can switch quickly between production of different models based on market demand, an advantage essentially held only by the U.S. plants of Japanese competitors back in 2005.

The financial situation of the industry in 2005 could only be described as dire. Early in the year, GM and Ford both had their debt cut to junk bond status. By 2006, both had slashed their dividend payments in an effort to conserve cash.

The spark that was Delphi

Then in the fall of 2005, Delphi, the auto-parts maker once owned by GM, filed for bankruptcy -- the biggest ever in the domestic auto industry -- and its president and some analysts suggested GM might eventually follow. Talks between the United Auto Workers union and GM about curbing health care costs for union members, retirees and their families seemed to be going nowhere.

But perhaps due to the shock of the Delphi bankruptcy filing, the UAW eventually agreed to give GM at least some of the health care cost concessions the world's largest automaker was seeking. The deal was followed by one at Ford early in 2006, and it paved the way for relatively smooth contract talks in 2007 that helped the automakers start to narrow the gap in health care costs between them and their Japanese competitors.

In 2005, the then-shocking price of about $3 a gallon for gas helped curb the runaway popularity of big SUVs and pickups, the profit engines for the domestic automakers. And as happened during the oil shocks of the 1970s and early '80s, Detroit once again found itself far behind Japanese automakers when buyers' eyes turned to more fuel efficiency. While many of Detroit's offerings got good mileage ratings, their product lineup was far more heavily weighted towards the less fuel efficient light trucks than the Japanese automakers.

But this time the Big Three played a better game of catch up. By 2010, efficient gas-electric hybrid engines were widely available on the big vehicles Americans wanted from GM and Ford.

The Big Three's traditional gas-only engines were also getting better mileage. And Chrysler, with a lift from its German parent, got Americans used to buying the cleaner diesel-powered vehicles long popular in Europe.

Even with gas nearing $5 by 2015, fuel economy was not as much of a drag on Big Three auto sales as it had once been.

And the soaring price of gasoline gave a big boost to private and government investment in fuel-cell technology. Vehicles using the cleaner, hydrogen-powered engines are just now finding their way into dealer showrooms. Customers are going on waiting lists or paying above-market prices for some of the hotter models.

Industry sales set records

Despite the steady rise in oil prices, population and economic growth helped demand for autos keep growing. U.S. auto sales in 2015 are now expected to reach 18.6 million vehicles, the fifth straight record and more than 1 million above the pre-2005 record, 17.4 million, set in 2000.

Of course, the steady climb in domestic sales was nothing compared with the explosive growth in China and India.

And U.S. automakers responded. They opened plants overseas to serve those growing markets. Besides lifting their sales and profits, that helped them create a new base of lower-cost Asian parts makers who could help supply their U.S. plants as well.

There were even some exports of U.S. made luxury brands to those countries, especially after communism fell in China soon after the 2008 Beijing Olympics.

But most important was the series of hot new vehicles coming out of Detroit.

While it wasn't easy, the decisions by GM and Ford to drop their weakest selling brands in 2008 helped them focus on building better cars and trucks.

And the 2007 alliance between GM and Nissan, followed by a similar pact the next year between Ford and Volkswagen -- by far the most significant partnerships for either automaker as the industry was consolidating -- also gave a lift to the U.S. automakers' product offerings.

For more news on autos and automakers, click here.  Top of page

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