Death of the American Car

We didn't invent it, but we sure popularized it. The automobile has always been a distinctly American institution, associated with the country's feeling of freedom and individualism. Or it was. Once. Long ago, perhaps, but not today.

The American car is in the throes of a sclerotic stroke, an engine on the verge of seizing. Crippled by hubris, misreading the markets, bloated with labor costs and dangerous levels of debt, the once-venerated U.S. auto industry is teetering on the precipice of becoming comatose. Looking at the financial condition of either General Motors (NYSE: GM  ) or Ford (NYSE: F  ) , one might be tempted to say they've already slipped beyond the realm of the living.

Gone are the halcyon days when dozens of manufacturers churned out gleaming hunks of metal. The vibrant market has long since been reduced to the so-called Big Three, and if you factor in Chrysler's 1998 "merger of equals" with Mercedes, you can even say that the rechristened DaimlerChrysler (NYSE: DCX  ) no longer has a unique American image anymore, whatever its pedigree.

As the largest and oldest car manufacturer, General Motors is a ghost of its former self. Billionaire investor Kirk Kerkorian's decision to sell his entire 10% stake in the automaker reveals the company's pallid complexion. While his attempt to control and mold GM in his own likeness was done as much for his own personal gain as to save the automaker from itself, Kerkorian's failure to cajole further action from management led to the parting of ways, and it may have cast the die for GM. Perhaps the proposed merger between GM and Renault-Nissan (Nasdaq: NSANY  ) would have saved the former, as Kerkorian had pushed for, but at what cost to the latter?

Ford, sadly, is in no better shape than its bigger rival; indeed, it's more of a shell than its forebears that made the Model T or even the Mustang. Surprising, considering that just a year ago, it looked as if the roles were reversed; GM was stumbling toward bankruptcy, while Ford was still profitable. The turnaround Way Forward plan was Ford's guidepost to lead it out of the woods, yet it was slow to respond to a changing market and blindsided, as it were, by the sudden surge in fuel prices. Once-popular pickup trucks and SUVs are now viewed as gas-guzzling pariahs.

As Ford attempts to cut $5 billion in costs per year, it is still losing more than $10 billion this year. It has also been forced to pledge virtually its entire asset base to assume debt levels nearly matching its market value as a way to maintain liquidity. This "all-in" gamble is necessary to give the company room to restructure, but it looks more like a wheezing gasp of desperation. Even its employees are jumping at the opportunity to grab the early buyouts it's offering, leaving Ford with a workforce just two-thirds the size it was at the end of last year.

For the first time ever, Ford has dropped to the No. 4 spot in sales behind GM, Toyota (NYSE: TM  ) , and DaimlerChrysler. Sales slumped nearly 10% in November, even as sales in the auto industry grew 2.9% to 1.2 million vehicles. Yet even Chrysler, whose sales last month rose 4.7%, is in need of a new strategy, as total third-quarter sales ended up with moribund inventories sitting on dealer lots.

In short, the American car industry is dead. Outsold, out-styled, out-everythinged by foreign competition. While currently sitting at No. 2, Toyota is set to topple GM from the top spot in sales. Nothing short of heroic last-ditch measures can revive this patient.

Ford probably realizes it has to jettison all or most of the premium brands for which it overpaid: Aston Martin, Jag-u-wahr, and Land Rover. Its undistinguished, repackaged Mercury line should also be retired. And its North American market should become the primary focus of its rehabilitation. While that cedes the international markets to the competition, it's not like Ford was excelling there anyway. Better to succeed at one good thing than to fail miserably at many.

General Motors also owns a herd of brands that could stand some thinning. The Saturn was born with production methods copied from the Japanese, but the execution doesn't seem to have advanced much. It took too long to introduce larger models and SUVs, and when it did, it was at a time when the market demand for such vehicles was imploding. GM could have bought Honda Motors (NYSE: HMC  ) outright -- with change left over -- for what it invested in Saturn, but now it installs Honda motors in the cars.

Perhaps the most unholy of suggestions is to seriously consider a merger between GM and Ford. Reports surfaced a few months ago that the two had talked right after GM's merger talks with Renault fell through, and a single, large American automaker might be just the thing to return the luster and shine to the chrome bumper of the American car market.

Without such thinking, we just might be towing both manufacturers to the junkyard of financial ruin.

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Fool contributor Rich Duprey owns shares of Ford, but does not own any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool's disclosure policy is ridin' out tonight to case the promised land.


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