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Big Three U.S. automakers to try again to get rescue money from Congress

03:09 PM CST on Tuesday, December 2, 2008

The New York Times

DETROIT – For the Detroit Three automakers to win over Washington lawmakers in their bid for federal aid, they will have to address a key question in the business plans they present Congress with today.

Just how serious are they about shrinking their vast lineups of brands and models to match the harsh reality of the market?

All told, General Motors, Ford and Chrysler sell 112 car and truck models through 15 brands in the United States.

By contrast, the top three Japanese automakers – Toyota, Honda and Nissan – have roughly half as many choices, with 58 models sold through seven brands.

A wide range of offerings was historically a source of strength for the American companies when they dominated the market – a strategy of providing a car for "every purse and purpose," as Alfred P. Sloan, GM's leader in the 1920s and 1930s, once said.

But the Detroit Three now sell fewer than half of all new vehicles in this country, with a market share of about 47 percent this year, compared with 62 percent just five years ago.

Supporting all those models and brands with separate marketing budgets, design teams, dealers and management divisions represents an enormous expense, particularly for GM.

The proliferation of models is one big reason why the American companies are losing so much money as vehicle sales slump to their lowest point in 15 years.

Cutting brands

As part of their plans to get $25 billion in federal aid, the Detroit companies will be making many promises, including symbolic ones.

For example, Ford's chief executive, Alan Mulally, will offer to take a pay cut from $21 million last year, according to people familiar with the company's plans.

Mr. Mulally is also traveling to Washington in a Ford Escape Hybrid. (Two weeks ago, the three CEOs traveled by corporate jet, inviting barbs from lawmakers. GM and Chrysler didn't disclose their CEOs' travel plans this time.)

But the Detroit Three also need substantive changes to drastically cut costs, industry analysts said, including trimming a glut of products and sprawling distribution networks.

"Downsizing brands and models is the minimum they have to do," said John Casesa, a principal in the auto consulting firm Casesa Shapiro Group. "This can't just be about resizing the companies, but also restructuring them."

GM is already trying to sell its Hummer brand. In its report to Congress, the company may settle speculation that it is considering selling or eliminating the Saab, Saturn and Pontiac brands.

People familiar with GM's deliberations said the company considered a plan this fall to put the Saab and Saturn brands up for sale. But those plans were dropped because of the lack of potential buyers.

With a market share so far this year of about 22 percent in the United States, GM is struggling with the costs of filling showrooms with eight brand lineups.

Dealerships

Shutting down a brand is a complicated, costly effort that requires buying out dealers protected by state franchise laws, as well as scaling back vehicle production.

Shrinking dealer networks may be a key component of the business plans that GM, Ford and Chrysler will present in an effort to show that they have viable, long-term strategies.

GM, for example, has about 6,700 dealers in the United States, compared with 1,200 for Toyota.

A thorny question, for GM in particular, is whether it can cut the number of dealers without incurring huge expenses to buy them out.



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