Splitsville in Motown

First Daimler-Chrysler paid a Canadian investment banking group that also purchased a majority stake in GMAC to take Chrysler off its hands. Chrysler isn’t doing well.

Now, Ford has put Volvo, Land Rover and Jaguar on the auction block. Volvo and Land Rover make money. Ford, Lincoln and Jaguar lose money. Overall, the combined Ford operation lost $12.6 billion, about $10.3 billion of which comes from Ford and Lincoln. Lincoln has gone from #1 in luxury sales to #7 since 1998. Ford’s business model built around making profits on pickup trucks and SUVs in North America is about as ill suited for our current raging gas prices as you could get.

Will General Motors be next? GM has already spun off half of GMAC and all of Suzuki, as well as its Delphi parts unit. It has also shut down its Oldsmobile division. But, it is still floundering. Its North American division still loses money for essentially the same reasons that Ford is losing money. The European and Asian divisions pick up the slack to leave GM with a slight profit per vehicle. Also, General Motors still hasn't overcome absolutely abysmal branding issues. It is losing market share and yet still competing with itself, instead of the other guys.

These companies need radical change. It is so bad that today’s editorial cartoon (available in a couple of days online) portrays domestic resistance to fuel efficiency improvements as something as almost as absurd as the association of Italian prisoners seeking to reinstate the death penalty so that they can be executed.

All of this is bad news for Motown. Big Three Market share is dropping and investors don’t want to waste the profitable parts of the automobile industry on subsidizing the unprofitable parts. And, the unprofitable market share shedding parts, it turns out, are the ones with factories in greater Detroit, rather than the ones with factories in rural Ohio or Mississipi.

Still, it may be good news for departing Volvo, Land Rover and Jaguar. Ford has greatly improved Jaguar’s visibility on American streets, but trashed its reputation for quality. Volvo and Land Rover would likely have followed if the companies had remained consolidated. The papers don’t know how bad the losses are at Jaguar, but if Volvo and Land Rover are both making even thin profits, and the three brand division is losing $2.3 billion, then Jaguar has to be losing at least $2.3 billion all by itself, and Jaguar doesn’t have a lot of cars to spread that loss over. Even if it made 230,000 cars a year, which I doubt, it would be losing $10,000 per vehicle. Even in luxury class those numbers are hard to sustain.