Despite insisting all this year that they had solutions to their financial struggles well in hand, both the Ford Motor Company and the Chrysler Group conceded Friday that the steps they had taken were not working and that more bad news was coming in one of the deepest auto industry crises in Detroit’s history.
Ford, which has held second place behind G.M. for 70 years, admitted for the first time that it would inevitably be ceding that spot to Toyota because of slumping sales and its decision Friday to close more factories and cut thousands of additional jobs. It also said it did not expect to make a profit in North America until 2009.
At the same time, the Chrysler Group, also pummeled by the decline in sales of big sport utility vehicles and pickup trucks, said it would report a loss for this summer of $1.5 billion, more than double what it had originally anticipated.
Its parent, DaimlerChrysler, also signaled that it did not see how to build a subcompact car profitably in North America, forcing it to turn to China or another Asian carmaker to help build one overseas. [Page B4.]
For its part, G.M., which is cutting 30,000 jobs and closing nearly a dozen plants, is set to decide within a month whether it wanted to link with a Japanese and a French auto company, a prospect that has rattled union members as well as state officials where G.M. employees live and work.
With all of the auto companies here putting themselves on the chopping block, the upheaval shows that Detroit’s basic business strategy — built on the assumption that what has long been thought of as the Big Three would make money simply by dominating the mass market with a full range of vehicles — is irrevocably broken, said James P. Womack, who has written extensively about the auto industry.
“All the old rules of the game are gone,” said Mr. Womack, co-founder of the Lean Enterprise Institute. And, he said, the challenge is now to play by the new rules, as dictated by foreign competitors. “We’re now in the reinvention phase,” he added.
That includes more cuts that will continue at least through the end of the decade. Detroit companies will be focused on closing plants, eliminating blue- and white-collar jobs, and cutting more deeply into their operations to reduce costs. Moreover, the automakers remain liable for billions of dollars in health care costs, both for their active and retired workers.
At G.M., those costs add up to $5.2 billion a year, or the equivalent of $1,440 a car. But for all their efforts to lose excess weight, the biggest challenge facing Detroit’s car companies is convincing skeptical American buyers that their vehicles, developed amid this chaos, are as attractive as those from their aggressive rivals. Thus far, they have been failing, reflected in their falling market share in recent years.
Adding to Detroit’s woes, its Asian competitors are investing billions of dollars more in American factories and hiring thousands more American workers.
Within six years, it is likely that Asian auto companies, led by Toyota, will outsell their Detroit rivals in the United States, according to a forecast by Edmunds.com, a Web site that offers car-buying advice.
The industry has already gotten a look at the lineup of the future. This July, the best-selling companies were G.M., Toyota, Ford, Honda and Chrysler. And what seemed to be a temporary aberration is about to become the norm, said Jesse Toprak, a senior analyst at Edmunds. “It was a sneak peek of what’s likely to happen going forward,” Mr. Toprak said.
That was not what Ford’s chairman, William Clay Ford Jr., was envisioning in January, when Ford unveiled the first phase of a restructuring plan that it calls the Way Forward.
Amid an announcement that it would cut 34,000 jobs and close 14 plants, Mr. Ford vowed that the 103-year-old company, founded by his great-grandfather, Henry Ford, would regain its supremacy in the American market.
“With it, we will retake the American road,” Mr. Ford said at the time.
But Friday, Mr. Ford signaled that his company was allowing Toyota to pass it. At the end of the news release that announced new cuts, including the elimination of 10,000 more salaried jobs, Ford said it expected its share of the market to drop to 14 to 15 percent after this year, 10 points lower than Ford was at the beginning of the decade.
At that time, bets were placed across Detroit whether Ford could surpass G.M.; now, the safe bet is that Toyota will pass Ford to become No. 2 behind G.M., something Mr. Toprak expects to happen for good next year.
“Frankly, our ranking doesn’t matter,’’ Mr. Ford now says. “You’ve seen, over the years, chasing market share with sometimes disastrous results.”
But given the unpredictability of gasoline prices, to have any kind of security in the American market, both Ford and Chrysler will have to reduce their dependence on sport utilities and pickups, which make up two-thirds of Ford’s lineup and three-quarters of the vehicles sold by Chrysler. Both vow they will do that by selling more cars and crossover vehicles.
Those will take time to reach showrooms. Although both have new crossovers on the way, the small car that Ford promises to sell in the United States will not reach the market until 2009 — three years behind compacts introduced this year by Toyota, Honda, Nissan and G.M., which has just introduced a refreshed version of the Chevrolet Aveo, built for it by its South Korean partner, Daewoo.
True, the new Dodge Caliber, introduced this spring, is selling well for Chrysler. Yet both Chrysler and Ford have to hope that gasoline prices stay down from their peaks above $3 a gallon this summer, and that they can keep rebates and other deals to a minimum while they sort out their new status.
One unknown in their predicament is the role of the United Automobile Workers, the union that serves as both their partner and adversary. It has granted some concessions on health care coverage to G.M. and Ford, but said last week that it would not cut a deal with Chrysler, because it was not in such bad financial shape. (Chrysler’s latest news could change the union’s mind.)
Beyond that, the union has demonstrated that its priority right now is to take care of the members who will be losing their jobs.
On Thursday, Ford and the U.A.W. reached agreement on buyout packages worth up to $140,000 apiece for 75,000 Ford workers, similar to the deals that were offered to G.M.’s 113,000 hourly workers.
The deals, which have not yet been matched by Chrysler, are a clear signal from the union that workers would be well off to get out now before 2007 contract talks, when some of the protection that the U.A.W. has offered generations of workers may diminish.
Once it gets through its current round of job cuts, Ford is expected to have fewer workers at its American plants than Toyota — a prospect that was hard to imagine in 1986, when Toyota opened its first free-standing plant in the United States.
On Friday, that factory, in Georgetown, Ky., built the five-millionth Toyota Camry sedan. It has been the best-selling car in the United States for nearly a decade, a title once held by the Ford Taurus.
Mr. Womack, whose book “The Machine That Changed the World” studied Japanese automakers’ American plants, calls the Georgetown factory, which now employs 7,000 workers, “the torpedo that came in when no one was looking.”
Reeling from the continuing ripple effects of that explosion, Ford, Chrysler and G.M. need to figure out how to maintain their foothold in a market that they once had practically to themselves. They might take some counsel from the original Mr. Ford.
In his 1930 book, “Moving Forward,” Henry Ford wrote that companies were often bedeviled by “the little things that are hard to see — the awkward little methods that have grown up and which no one notices.”
Eliminating those tiny wasteful practices, he wrote, could make a big difference between success and failure.
Toyota, at least, was listening. While Ford Motor’s “Way Forward’’ clearly suggests it faces a struggle ahead, the tagline of Toyota’s new advertising campaign is a much more positive “Moving Forward,’’ a direct homage to the path that its Detroit rivals may have no choice but to follow.