US airlines and the car industry are bellwethers for the changes being wrought by the surging cost of oil.
How both industries, long considered to be ‘old’, ‘mature’ and unwanted groups of polluting carbon emitters, handle their restructuring, will tell us a lot about how the rest of the world economy can handle the move to high energy costs (and food costs) and rising carbon costs.
A lot more pain will have to be endured, just as in the 1970s and 1980s, but the speed of the change in both industries, especially in the US, tells us a lot about the determination of companies involved to survive.
Around the world two dozen airlines have crashed into financial oblivion, or been taken over at big discounts by new investors (JetBlue in the US) and the survivors are busy trying to reinvent their particular business models to stay alive.
Now there’s a forecast that US airlines could lose $US10 billion this year, which would make it the worst year since September 11, but probably a much tougher year because the wrenching changes and losses are not finished.
The US airline industry’s fuel bill could hit $US61 billion this year, about double last year’s figure.
And the US car industry is changing shape before our very eyes: so far it’s the big three US groups, Ford, GM and Chrysler, but now Toyota is chopping and soon the likes of BMW and Mercedes will be forced to cut the output of fuel guzzlers.
Ford led the way in May in announcing plans to revamp itself by slashing production of big fuel chewing sports utility vehicles and so-called trucks (big utes in Australia) and emphasising smaller and more fuel efficient cars; then GM followed while Chrysler is grappling with what to do because it has few smaller cars and fuel efficient vehicles to turn to because its line up is dominated by SUVs and pick up trucks.
Toyota revealed a lowering of sales forecasts in the US, which in turn would drop worldwide profit this year by up to 20%.
Since May it’s got worse because this week saw more announcements from GM, Ford and Toyota. Even though US petrol prices fell 2c in the past two days from Monday’s peak of $US4.08 a gallon, the car industry is obviously determined to remake itself into a smaller, more efficient beast with a chance of surviving.
So General Motors has indefinitely delayed the replacement of its current range of large pickups and sport-utility vehicles.
The staff that would be used to design and develop the new models have been moved to development of more fuel-efficient car models.
GM said this week that the engineering staff working on the redesigned Chevrolet Tahoe SUV and GMC Sierra pickup for 2012 were being moved to the new models of the fuel efficient vehicles.
GM has already said it will close four of the factories that build the large SUVs and pickups by 2010. The four plants closings will save $US1 billion a year and cut North American truck-making capacity by 700,000 a year and actual production by half a million as 200,000 trucks will be made at existing factories.
The company says it will continue to make the existing models more fuel efficient, but new models won’t be developed until the company has a better idea of where the car market is heading.
GM’s sales of pickups, SUVs and vans in May fell 37%.
Toyota this week revealed more cuts to US production of its full-size pickup trucks this year.
The production cut at Toyota’s two US truck plants is the second this year: the company cut output of its Tundra pickup truck and the Sequoia SUV in March in the face of a sharp drop in demand.
Now Toyota will stop making the Tundra at its San Antonio, Texas, plant for 14 days between now and the end of October and Toyota’s Indiana plant, which makes the Tundra and the Sequoia SUV, will shut for six days between now and the end of August, and production cuts were likely in September and October.
Toyota will also slow the production lines at the plants to further cut output as it struggles to reduce unsold stocks and to better align demand with production.
The moves will boost costs, especially by slowing the production lines which are designed to optimise costs by running at capacity.
Toyota can produce about 300,000 Tundras at the two plants but wouldn’t say how much it was looking to cut production by with the latest decisions.
Toyota’s US sales fell about 5% in the five months to May, compared to the same time in 2007. Sales of the big trucks (developed for the US market) fell 16% and outweighed increased sales of fuel efficient Corollas, Camrys and other models.
Toyota sold 12,144 Tundras in May, down 34% from last year.
The US car market is likely to fall to or just under 15 million units this year, which would be the lowest for 14 years.
Meanwhile Ford is putting a big pick up truck plant in Michigan on idle status for five weeks as it tries to adjust its output to sales.
The move is in addition to the cuts announced last month and indicate that the US auto market’s condition continues to worsen.
Ford said its truck plant in Wayne, Michigan, which makes the Lincoln Navigator and Ford Expedition, will be shut from next Monday until August 25.
The Navigator and Expedition are two of Ford’s largest SUVs but sales in May tumbled 37% and 43% respectively. Expedition sales are down 31% in the year to May.
In July Ford plans to update investors on its production plans but the cuts mean the company will make deeper cuts in truck output than first thought by analysts.
Ford will also shut its Louisville p
