2002: Year of transition. (On the Industry).

In the years to come, historians will view 2001 as year of profound change. The events of September 11th shook the foundation of America, its economy and its global security. Well on its way toward a recession, the U.S. economy was severely impacted by these events and the ripple effects directly affected the automotive industry.

The 4th quarter 2001 incentive war by the Big Three automakers negated a portion of the negative impact of 9/11. Finishing the 2001 calendar year at a healthy 17.2 million in North American sales (second best ever, only 1.5% below 2001), the U.S. automotive industry was greatly affected by the Firestone/Ford Explorer tire recall and DaimlerChrysler's restructuring efforts. Meanwhile, Toyota, Honda and the Korean OEM's keep trucking along with production volume increases.

Despite production volume stability, the Tier 1 automotive supplier industry was impacted by increased OEM price reduction demands, declining stock prices and waning investor interest. Several large suppliers including Federal-Mogul, A.G. Simpson, Hayes-Lemmerz and several divisions of Valeo declared bankruptcy.

2002: Road to Recovery for the Big Three

Despite the continuing partisan fight on an economic stimulus plan in Washington, the U.S. economy is recovering, albeit at a slow pace. Emergence from the "official" recession is generally expected during mid-year with many analysts predicting flat automotive demand during most of 2002. Due to the heavy incentive push in late 2001, many 1Q 2002 vehicle sales occurred in 4Q 2001.

Ford Motor Co.: Built Ford Tough? With its 2002 cost-reduction plan firmly in place, Ford will close several assembly plants, reduce its white-collar workforce by 10,000 jobs and reschedule its 2003-2004 vehicle introductions. The continued revamping of Ford's infrastructure should be expected as Ford, Jr./Scheele/Padilla implement much-needed changes to jump-start Ford's lackluster finacial performance. Ford is also attempting to rebuild its supplier relationships and develop a new green corporate model.

General Motors: Back on Track. With Ford and DCX stumbling, GM has been nimbly maneuvering to enhance its current North American market share through large incentive programs and positioning itself for a brighter future by empowering its new executive team (Lutz, Cowger et. al.) and revamping its entire product lineup. In 2002, expect GM to continue its cross-branding and product integration with its global partners-Fiat, Daewoo, lsuzu and Suzuki. GM's recent momentum can be attributed strong truck designs, key management changes and smart financial transactions (finally selling Hughes to EchoStar).

DaimlerChrysler: Teutonic Putsch Continues. The triumvirate of Schrempp-Zetsche-Bernhard continues to reshape DCX's North American operations through employee reductions, cost management and platform consolidation. In 2001, the globalization of DCX continued to march along as Hyundai and Mitsubishi joined the DCX family of companies. Future DCX product plans show strong cross branding of Hyundai and Mitsubishi vehicles along with a diminishing presence for the Chrysler nameplate. The Dodge/Jeep brands continue to represent DCX truck products while Plymouth joins Eagle in the brand graveyard. DCX continues to reposition its light-vehicle products to avoid internal competition within the North American market:

DCX Light-vehicle Brands

Hyundai        Small Car
Mitsubishi     Sport, Small Sedan
Chrysler       Large Sedan/Minivans
Dodge/Jeep     Truck
Mercedes-Benz  Luxury

During the past year, DCX has reengineered its relationship with its supply base. Utilizing a more hard-line approach, DCX expects squeeze cost reductions out of its suppliers, reduce the number of suppliers and evaluate the total outsourcing of vehicle production to suppliers like Magna International.

Predictions: Q & A for 2002

Q: Will the incentive craze continue into 2002?

A. Despite the Big Three's aversion to vehicle incentives, expect this practice to persist throughout 2002 as the economy recovers and competition between the automakers heats up.

Q: Will DCX fully recover in 2002 or realize that the "merger" between Chrysler and Daimler-Benz should be reversed?

A. 2002 will be a pivotal year for DCX as many profound management decisions take full effect. As DCX formulates synergies between Mitsubishi, Hyundai, Mercedes-Benz, and Chrysler, don't expect the status quo to continue. Major structural changes are in the future for the former Chrysler Corporation's North American operations. Don't expect DCX to return to profitability in 2002. 2003 is more likely.

Q: Will Bill Ford Jr. be able to lead Ford into profitable territory in 2002?

A. Given Ford's recent changes, persistent pressure from Wall Street and a flat 2002 forecast, it's likely that Ford may be able to make a small profit in 2002. The Ford PR machine is expected to be in high gear in 2002 as the company continues its damage-control mode due to the Firestone debacle and string of product recalls.