Last July UMTRI released a study that documented the financial risks to Detroit automakers, and the risks to American jobs, of higher fuel prices. The study predicted that gasoline prices over $3.00 per gallon could lead to combined losses of $7 to $11 billion of profits for Detroit automakers.
Since that report, gasoline prices have risen 30-60% and spiked over $3 a gallon. Ford and GM have reported over $19.3 billion in combined losses. In addition, they have lost 4.4 points of market share since 2004.
When the report was released it was criticized by Detroit automakers. They cited the “implausibility” of such high gas prices. GM told the Wall Street Journal that our profit-per-vehicle estimates were too low. In fact, it was our estimates of the impact of gasoline above $3 per gallon that were low—the actual impacts on share and profits exceeded our predictions.
The myopia of the Detroit automakers about their vulnerability was clearly shared by many in the Detroit media. Last year, the Automotive News was the only Detroit-based media group that published (but only on their website) a story about our report. Now, the June 26, 2006 issue of Automotive News has a front-page story that is essentially a follow up to the 2005 story. Thank you, Automotive News, for covering this very important issue before your peers.
There is no satisfaction in being proven right about Detroit’s vulnerability to high fuel prices, especially since the cost of their vulnerability is being borne by thousands of our fellow citizens who are losing their jobs. Let’s just hope Detroit can see clearly now.
Walter is the Director of the Automotive Analysis Division of the University of Michigan Transportation Research Institute (UMTRI). He studies the adoption by consumers and automakers of new powertrain (electric, hybrid, clean diesel, fuel cell, alternative fuels), safety, and telematics technologies. Walter worked for General Motors for 9 years in sales forecasting, product development, marketing, and manufacturing (1993 found him on the floor of one of GM’s component factories). Prior to joining the University, he was Executive Director of Forecasting and Analytics for J.D. Power and Associates. He earned his doctorate in Economics from UCLA in 1983.