The used-to-be Big Three

General Motors, Ford and Chrysler weren't called the Big Three just because they produced the most vehicles in North America.

As giant employers, they had big influence, energizing entire economies with their high union wages and generous benefits packages.

As giant manufacturers, they created style. Status was instantly signalled by black Lincolns and pink Corvettes. Seatbelts, reduced vehicle emissions and electric cars had to wait until the carmakers were good and ready.

Politically they had a lot of power. The L.A. Times recently calculated that since 1990, the auto industry as a whole has donated $100 million US to Republicans and $34 million to Democrats.

And then it all slipped away like gas in an SUV.

How Detroit automakers lost traction

Analysts cite several reasons for Detroit's woes. Many of them come down to two things: product and labour costs.

Product: North American automakers made a big commitment to large sport utility vehicles in the 1990s. For a while, that was the segment that was selling. But SUV sales peaked in 1999 and have been sliding ever since.

The gasoline price surges in the second half of 2005 hurt sales of SUVs even more. This continued into April 2008, as gas prices inched closer to $4 a gallon in the U.S. Year-over-year sales of trucks dropped 17 per cent while sales of large SUVs plunged by 29 per cent.

Japanese automakers, long perceived as the leaders in the smaller, fuel-efficient vehicle market, aren't nearly as dependent on SUV models. While Detroit was rolling out one giant SUV after another, Japan was busy churning out gas-electric hybrids.

Some industry observers say Detroit has also taken too long to bring more new and redesigned vehicles to market. Falling sales and falling market share have meant that plants have been operating below capacity. For instance, GM's plants were reported to be operating at 85 per cent capacity in November 2005, well below the plants of its Asian competitors. Hence the production cuts, plant closures and layoffs.

There's also the issue of perceived quality and reliability. In the past, Japanese automakers scored much better in initial quality ratings than North American nameplates. That's not as true any more. GM and Ford models have sometimes beaten Japanese models in recent surveys by J.D. Power and Associates. In fact, GM's Oshawa No. 2 plant was ranked as the best vehicle assembly plant in North America in 2005 in terms of initial quality. But getting the car buying public to realize that hasn't been easy.

Labour: Another big reason why the U.S.-based automakers are having problems. GM, for instance, used to pick up the entire cost of funding health insurance premiums for employees, their survivors and GM retirees. Those costs have risen at double-digit rates every year. A recent agreement with the UAW will allow GM to trim billions from its annual health-care bill. But the non-unionized Japanese automakers, with their younger American workforces (and far fewer retirees) will continue to enjoy a cost advantage.

One of the conditions of the U.S. bailout package is that the Detroit Three reach labour-cost parity with Japanese automakers that have U.S. plants.

The issue of labour productivity is also cited by many. The 2005 Harbour Report estimated that Toyota's lead in labour productivity amounted to a cost advantage of $350 to $500 US per vehicle over North American manufacturers.

The United Auto Workers union on Feb. 17 said it had reached a tentative agreement with Chrysler, GM and Ford to modify existing labour contracts. The exact terms were not announced, but the union was expected to agree to measures to make labour costs competitive with the companies' Japanese counterparts.

The Canadian Auto Workers union called its renegotiations with GM a major sacrifice.

"Auto workers did not cause this crisis, and cutting wages won't solve the crisis," said CAW economist Jim Stanford, who says the reason governments want auto-plant jobs in their jurisdictions is that those jobs are well paid.

What the future holds

The Detroit automakers are now busy introducing more fuel-efficient vehicles. So-called CUVs — car-based crossover vehicles — are the fastest-growing vehicle segment, with 41 models now available in the North American market.

That's good news for the Canadian auto industry, Scotiabank economist Carlos Gomes says. "We estimate that Canada produces about one-third of all CUVs assembled in North America [at Ingersoll, Alliston, Cambridge and Windsor, all in Ontario] — more than double its share of total vehicle production."

Ford's Escape is the biggest-selling CUV, but here again, the Japanese have an overall lead. Imported brands have a market share of almost 60 per cent, according to a recent analysis by Scotiabank's Canada Auto Report.

The automakers say they can turn this thing around. Analysts say they'll need to chop vehicles, models or brands.

The Detroit Three also need to modernize an outdated dealer network and boost investment in their remaining plants and products.

As far as new products are concerned, Ford has announced a gas/electric Fusion hybrid, a Mercury Milan hybrid and increased the efficiency of its vehicles overall. GM has pioneered new battery technology for its Chevy Volt and come up with a fuel cell-powered concept car called the Chevy Equinox. Chrysler is experimenting with hybrids with its 200C EV sedan, the Jeep Patriot EV, the Chrysler Town & Country EV and the all-electric sports car — the Dodge Circuit EV.

New products, more efficient plants, fewer employees, renegotiated contracts and government loans may help the Big Three succeed. But with the president of the United States saying he hasn't closed the door to a government-backed bankruptcy for struggling automakers and many taxpayers convinced the bailouts are poorly conceived, the automakers have to consider something that was once almost unthinkable.

They may not be too big to fail.