Detroit Automakers Outline Hopes for a Rebound

Jan. 29, 2007 — -- The last several years have not been kind to American automakers. Ford and General Motors in particular were forced to close plants and lay off workers as they lost market share to overseas rivals and watched profits tumble.

But the CEOs of GM and Ford tell ABC News that they believe their companies can make a comeback. They even claim to be optimistic about the future of the once-mighty U.S. car industry.

Ford posted the lowest profits for any American carmaker last year, losing a mind-boggling $12.7 billion. And now Toyota is expected to surpass GM as the world's largest automaker this year.

But even amid these sobering numbers, Ford CEO Alan Mulally told ABC News he believes the company will bounce back over the the next few years.

"Our plan now is that we'll return to profitability in 2009, so we are just at the bottom and next year we'll start to climb out again," said Mulally.

For the full report watch "World News with Charles Gibson" from Detroit Jan. 29 and 30.

Mulally assumed the leadership at Ford in October after successfully reviving the airline maker Boeing. He said the struggles facing the automaker are easily identified -- foreign carmakers like Toyota and Honda have benefited from inspired engineering and design while many consumers now view their American counterparts as stodgy and unimaginative.

"Clearly the world has changed … and so we need to shift with that and create cars now that are more efficient, the customers really want and value."

In the past three months, Mulally has worked to devise a restructuring plan and said it's imperative the company sticks to its new strategy.

"The most important thing on a turnaround is that the entire team deals with the situation and we look through the world with very clear glasses, what the business situation is, what the environment is, our competition, our situation … and then develop a very comprehensive plan to deal with that."

Toyota Poised to Become World's Largest

At the same time, the leadership at GM is watching closely to see if Toyota in fact passes GM in total production in 2007.

"There's a lot of people who are predicting the outcome, but that's why we play the game -- to see who wins at the end," said Rick Wagoner, the GM CEO. "We're going to be fighting for every sale right to the last part of the year. And if we win, great, if we don't -- we'll come back the next day and try harder."

In the meantime, he said GM will focus on its strengths to push for that title this year.

"We produce 9.1, 9.2 million units the last couple of years. We benefited from unbelievable growth in places like China, where we have a great representation, in fact a leadership position … so if we can take advantage of that and strengthen our position, redouble our position here in the U.S. and Europe, we'll see how the race comes out at the end of the year."

Costs Beyond Cars

While Ford focuses on restructuring its factories to consolidate resources and deal with shifting demand, Wagoner said GM is looking to a different area of its budget to improve profitability.

Because of longstanding labor union contracts, American manufacturers pay out hefty health care and pension benefits, often to retirees who no longer even work. Industry analysts estimate that for every car sold by a U.S. carmaker, $1,500 is paid out in health benefits to workers and retired workers -- known in the industry as "legacy costs."

"We are dealing with some issues that have developed over 40 or 50 years … the so-called legacy costs, health care costs," Rick Wagoner said.

He said GM has put $70 billion in pension funds and health care trusts since the early 1990s, which puts the company at a competitive disadvantage to manufacturers in other parts of the world, most of whom use non-union workers and can more easily invest in new technologies as his company pays health bills.

"It's a big elephant … The cost is high. You know it's been well over a $1,000 a car disadvantage. And it is a function of the fact that we do things differently in the United States than other countries," Wagoner said.

"It's money that undoubtedly, if we had had to put into, you know, advanced technologies, we might be farther along. But we're recognizing we've got to get those issues fixed. And fortunately, we have, for example, got our pensions more than fully funded," he said. "But when that's done, the base of the business is set up actually to run pretty well."

Wagoner said this is an issue all U.S. corporations will have to deal with. GM, he said, is simply the first, and is looking to Washington for a different take on health care funding.

Even if he gets GM's costs in line, the company will need to also find willing customers, something Wagoner realizes it needs to win back. Currently, a lot of Americans look abroad for more fuel efficient cars, despite what GM has to offer. Wagoner said that "frustrates" him somewhat, but he's working to change the reputation.

"To let people know that, for example, the Chevy brand offers fuel economy leaders in many segments. A huge number of cars that get over 30 miles per gallon, for example," he said. "Highlight the fact when we introduce our full-sized pickup truck, that we have a significant fuel economy advantage versus all the competitors."

But he said he realizes that changing the public opinion is not likely to happen overnight.

"Reputations are built over years, and they change slowly … Maybe someone bought a car in 1980 from GM, didn't perform well," he said. "Our quality levels are much better today than they were then. It takes a while to convince that person who's put a lot of money -- I mean the car, truck is the second-most expensive purchase people make -- takes a long time to get them to reconsider."

But Wagoner said he believes the company, and its products, will get a fair chance from Americans. The key, he said, is in a vehicle's design.

"We're putting a huge amount of effort in putting exciting products so people who might otherwise say, 'Gee, you know I'm not sure, it's kind of comfortable to stick with an imported brand, let's say on a mid-sized car. But, wow, look at that great look that I can get in the new Chevy Malibu.' We're convinced that that'll give people a reason to come give us a look. And when they do that and get in and drive our car they go, 'Wow, I didn't know GM had this level of quality,'" he said.

Mulally said Ford is also working to convey a new image to drivers.

"Part of what we need to do is make sure that we help communicate and help people understand that this is a new Ford and we've got some great, exciting vehicles with very comparable quality and even better value than our competition. And we just need to help everybody really understand that, if we can get them in [Ford cars] … I know they're gonna love 'em."

Growing Pains

Ford has been the subject of merger talk recently, first with Renault-Nissan and then with Toyota after Mulally met with management there. But he refutes the idea that he is forming any sort of partnership.

"We have no mergers in our, in our future right now. The most important thing that we do is focus on Ford and turnaround Ford and get it going in a positive direction again," he said.

He added that the talks are more about business planning than mergers.

"We have so many things that we have in common that we need to work on together -- especially in the environmental area and the regulatory environment and all the global trade rules. And so, it's just really important that I initially reach out to all of my competitors and make sure that we're doing things together that we need to do for the good of the industry," he explained.

Ford recently offered a buyout plan that a third of the company's workforce accepted.

"Well, a turnaround or a restructuring of the magnitude of what we are doing can be hard on everybody, and it is hard on everybody … not only the people that are leaving, but also all of us that are staying.

"And the most important thing that I think we have done -- and done well -- is to treat everyone with compassion and respect, offer multiple programs to allow people to move on with their lives, and then pulled together quickly as a team with those of us that are going forward, and really focus on our turnaround plans. The most important thing is that we treat every single person with respect and with compassion and dignity," he said.

And, he's confident Ford will be an "important company going forward."

"I think initially it'll, it'll be a smaller company," he said. "It'll be more nimble. It will have more flexible manufacturing, we'll make more cars and trucks in the same plant. The quality will continue to improve year after year. And most importantly, we will have a family of cars and crossover vehicles and smaller SUVs to compliment the bigger SUVs and the trucks that have made Ford famous over the recent years, and a really nice, desired, preferred family of cars and trucks."

Given the challenges, he still believes it's not too late to revive the brand.

"I don't think so. Ford is an American icon … it's a wonderful brand, it's got a great design and manufacturing team worldwide … we'll be fine because we've done this before and … we're gonna do it again."