Detroit's endless winter
More bad news is on the way for Ford and General Motors, and they are running out of time for a turnaround.
By Alex Taylor III, FORTUNE senior editor

NEW YORK (FORTUNE) - When Super Bowl XL kicks off this Sunday in Detroit, it should provide some much-needed diversion for the hometown Big Two. January already ranks as one of the cruelest months ever for General Motors and Ford and more bad news is on the way.

It arrives Wednesday, when automakers report their sales for the month just ended. A forecast by Merrill Lynch projects a January downturn of 2 percent for all manufacturers, but sees GM (Research) and Ford (Research) falling far more than that. Merrill analyst Jon Murphy figures GM sales will fall 10 percent for the month, driving its market share down to a measly 24.1 percent -- down two full percentage points from a year ago.

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Ford is expected to suffer a 5 percent decline, shrinking its market share half a percentage point to 18.2 percent. JD Power and Associates, which only tracks cars sold at retail, is looking for a more alarming decline. It says sales are running 11 percent below a year ago, with GM's retail business down 28 percent and Ford's off 25 percent.

The continuing market share slide -- 2006 now becomes the 11th consecutive year that Ford has declined -- adds further evidence to the sense that time is running out for both of these companies to fix their North American operations. Without a massive reversal of customer preferences, GM and Ford simply will have a hard time staying in business.

They can't expect much help. The United Auto Workers is showing little interest in relaxing its onerous wage and benefits requirements, and the federal governments shows no sign of arranging a bailout like the one Chrysler got in 1979. In an interview last week, President Bush helpfully suggested that GM and Ford improve their results by creating "a product that's relevant."

That was the least of the week's bad news. GM shocked investors by announcing that it lost $4.8 billion in 2005's fourth quarter. All by itself, North American operations lost $1.5 billion, bringing its total losses for the year to a shocking $5.6 billion.

Chairman and CEO Rick Wagoner blamed legacy costs and GM's tardiness in reacting to falling vehicles sales this year -- especially big SUVs. "2005 was one of the most difficult years in GM's history," he said. GM is slashing its production capacity by one million vehicles and cutting 30,000 jobs to get profitable again.

Across town, the damage at Ford was smaller in magnitude but just as painful. In an otherwise profitable year, its North American operations lost $1.6 billion. Chairman and CEO Bill Ford announced plans to lay off 25,000 to 30,000 workers and cut production capacity by 1.2 million car and trucks. Ford called the reductions "painful sacrifices to protect Ford's heritage."

Is there any hope for these two wounded giants? Wagoner, a former college basketball player, lofted some low-percentage shots from beyond the three-point circle. He pointed to faster new model introductions and additional cost cutting as ways for GM to make "significant improvement" in its North American operating results. But headlines about multi-billion dollar losses aren't going to help GM lure customers back to its showrooms, and without them, nothing can save the company.

Bill Ford, meanwhile, is trying a different tack. He's launching a makeover plan for his family's company called the "Way Forward." The most radical part calls for transforming Ford's hard-nosed production-driven atmosphere into a softer, customer-focused culture.

But Ford has been down this road before under ousted CEO Jac Nasser. And Ford has provided few details about how this transformation is actually going to occur, leading to significant skepticism on Wall Street. Deutsche Bank analyst Rod Lache put out a report bluntly headlined, "The plan is unconvincing."

Ford might be better served by following the example set by DaimlerChrysler last week. New chairman Dieter Zetsche has been so shocked by the backbiting and infighting at the company's corporate headquarters that he has blown it up.

He announced that he was emptying out Daimler's modern office complex and moving all the corporate executives downtown to an old engine plant at Mercedes-Benz headquarters. That way, they will be kept busy with day-to-day problems of the auto business like boosting market share, and won't have time for office politics.


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