UAW-CHRYSLER NEGOTIATIONS AT A STANDOFF

Story first appeared in the Traverse City Record-Eagle.

Negotiations over a new four-year contract between Chrysler and the United Auto Workers have broken down as both sides refuse to budge on key financial issues, two people briefed on the bargaining said Thursday.

The talks ended late Wednesday in a dispute over the number of workers who are paid an entry-level wage, said the people, who asked not to be identified because the negotiations are private.

Chrysler Group LLC, which is losing money, wants no limit on cheaper entry-level workers. The union wants a cap on the number of those workers, who make $14 to $16 an hour, about half of what a longtime union employee earns.

Chrysler factories continue to operate under a contract extension.

Detroit’s three car makers are each negotiating labor agreements with the UAW.

Detroit Car Makers Come Back

This story first appeared in USA TODAY.
Ford Motor reported Tuesday that it made $2.4 billion in the second quarter, down 8% from a year ago.
The earnings reports — especially Chrysler's projection it only will break even this year because of the cost of repaying the loans — won't trigger a ticker-tape parade in downtown Detroit. But they do suggest that the Detroit 3 have put the big loses behind them.
No tooth fairies, guardian angels or rabbits out of hats rescued Detroit automakers from what seemed certain ruin not that long ago. Motor City's still-fragile bounce-back is the result of years of awful pain.
To stop the billions in red ink and give automakers a chance to make money again, more than 100,000 people lost their jobs. American taxpayers put tens of billions into auto bailouts and lost $1.3 billion on Chrysler, and would lose another $11.6 billion if the U.S.Treasury sold all its remaining shares of GM stock at typical recent prices. Car buyers will be hurt, too, eventually seeing higher prices and fewer discounts if the restructured U.S. auto industry avoids the overproduction that for years resulted in fire-sale discounts.
Two years ago for Chrysler, too: Government-arranged Chapter 11 bankruptcy reorganization, summer of 2009 that gave control of Chrysler to Italy's Fiat in return for high-mileage small cars and international distribution.
Ford avoided Chapter 11 and federal bailout money, so it took longer, five years, to become an "overnight success."
Actually, the reshaping of the Detroit 3 stretches further back than that.
Restructuring has been underway at these companies for many years, aimed at making them profitable at much lower volumes.
From 2006 through 2010 the three Detroit automakers shed an astonishing 120,000 jobs, more than one-third their combined total, and closed dozens of factories.
Key changes
The Detroit 3 now are sized to make money when the U.S. new-vehicle market is 12 million or 13 million a year. The record is 17.4 million, set in 2000, and the low in the recent recession was 10.4 million, in 2009. The industry's on pace to hit 12 million or more this year.
If demand for new vehicles booms, Detroit can schedule overtime and reopen idle plants to avoid missing the chance to sell more than expected.
Several modifications of the labor agreement with the United Auto Workers union, which represents most auto-industry hourly workers, have lowered the total outlay for workers — pay, benefits and other costs — to a range of $49 an hour (Chrysler) to $58 (Ford), down from an average $75 to $78 before the contract modifications in 2005, 2007 and 2009.
The 2007 changes were key, letting automakers off-load responsibility for retiree health care to the UAW and establishing two-tier wages. Newly hired hourly workers are paid $14 to $16 an hour, about half what veterans get.
New hires are locked into less-generous benefits than veteran workers get, no matter how high the new group's pay rises. They cost infinitely less, and they will become the majority of hourly workers as others age and leave.
Before the bloodletting, there was no hope.
At GM, for example, Structural costs were so fouled, so broken, that they couldn't make money at the high end of the (sales) cycle: 16.8 million and General Motors was essentially breaking even.
Akerson wasn't connected with GM before the bankruptcy period. A businessman and investment specialist who graduated from the U.S. Naval Academy in 1970 with an engineering degree, he was put on the GM board July 24, 2009, by the Obama administration, was picked to be CEO last September and got the chairman's title as well on Jan. 1.
He completed Detroit's corner-office overhaul. All three CEOs now are outsiders in an historically insider town. Ford Motor CEO Alan Mulally was a Boeing executive when hired by Ford Chairman Bill Ford in 2006 to save the Blue Oval. Chrysler Group CEO Sergio Marchionne is also CEO of Fiat Auto, which now owns a majority of Chrysler, comes from way outside Detroit, culturally and institutionally. And he's known by investment analysts as a finance and deal man more than as a "car guy."
No guarantees
Despite the new blood at the top, leaner organizations and recent near-death experiences as motivation, the Detroit rebound comes with no guarantee.
• Costs are rising. The new models in the pipeline, the ones that could save the industry, cost billions of dollars to design, develop and launch, then to support with heavy marketing for a year or so. Commodity costs are up, too.
•Negotiations with the UAW on a new contract begin this week. Automakers don't want to lock in higher wages or other costs, but the union passionately wants to regain some ground it surrendered to keep the automakers afloat.
•Detroit's move to small cars might not work. Ever-tightening federal fuel-economy regulations almost dictate many more small, lightweight cars for automakers to hit the required average of 35.5 mpg in 2016 and perhaps 54 mpg by 2025, according to the latest not-so-private discussions between the White House and the auto industry.
But you can't sell what people won't buy.
One market analyst says Americans don't have an affinity for small cars. When they can, they like to get into bigger, more comfortable cars.
•Economic malaise lingers. Unemployment remains stubbornly above 9%. And Treasury Secretary Timothy Geithner said on last weekend's TV talks shows that the economy might have slowed, not accelerated, in the second quarter.
People without jobs in an uncertain economy are antithetical to new-car sales. It's not clear whether GM, Ford and Chrysler could withstand more years like 2009, when only 10 million cars were sold. And if they must try to, what's left to cut?
•Product problems remain. GM has far too many powertrains that aren't all that different. Akerson says there is not any real difference between a 1.4- and a 1.5-liter engine. He adds that just causes complexity in your purchasing and your supply chain.
GM also must move fast into non-petroleum-fuel powerplants, such as pure electric cars and those fueled by clean-burning compressed natural gas (CNG), he says.
Ford's confusing high-tech electronics, and six-speed automatic transmissions tuned so aggressively for fuel economy that the cars drive poorly, caused frustrated owners to slap Ford down to No. 23 on a recent J.D. Power and Associates quality survey, from a lofty No. 5 a year ago.
Ford's Lincoln luxury brand definitely needs a better-defined identity. Consumers are smart. They're not going to pay an extra $10,000 for a cosmetically enhanced Ford.
Chrysler's Fiat-designed, U.S.-built 40-mpg small cars — a Fiat promise to the U.S. government as part of the Chapter 11 rescue — have yet to materialize. They're in the works, but will they be soon enough, and good enough, in a market crawling with new-design, high-mpg small cars?
•Widespread mistrust of Detroit, from years of shoddy and un-inventive vehicles, hasn't been eliminated.
Ford seems to have a head-start overcoming that, for not taking government money.
GM's Akerson acknowledges the low esteem and notes that it's an impression created over the past 20 or 30 years, and they are not going to cure that in one year.
He hopes the advanced-technology Chevrolet Volt helps erase the low-tech image and that a series of new models coming in the next 18 months will help identify GM as an exciting and relevant company.
In a fell swoop, Chrysler has overcome some resistance. Its "imported from Detroit" TV ad during the Super Bowl acknowledged that the city and its main industry have taken hard hits but asserted powerfully that times have changed. The ad starred popular musician Eminem driving a then-new Chrysler 200 mid-size sedan.
The ad spawned lines of clothing, overwhelming numbers of e-mail to Chrysler and a continuing social-media buzz.
What Akerson finds exciting, and believes is a mark of GM's integrity and a harbinger of its success, is that the company continued to work on the controversial Chevy Volt extended-range electric car even during the distractions of Chapter 11.

CAN THE UAW AND THE DETROIT BIG THREE FIND COMMON GROUND

Despite massive restructuring at the Detroit three since 2007, top union and company negotiators who kick off national labor talks later this month will be in for a difficult stretch as they race toward a Sept. 14 deadline on the current contract.
As many as six assembly plants face uncertain futures — three each at Ford and GM — and the automakers will still make an effort to cut labor costs that have already been dramatically slashed in recent years.
UAW and Detroit Three leaders may also find themselves at odds with rank-and-file autoworkers who feel they've already taken more than their fair share of cuts. Many are talking tough about winning back concessions.
One Ford employee said it has been over six or seven years since they have had a raise and complained the automaker just keeps taking away from them.
Throughout it all, the seasoned negotiators must be mindful of appearances after the highly politicized government-backed bankruptcies of General Motors and Chrysler. Neither side wants to look like it's slipping back into old ways.
The UAW's top agenda will be jobs. For them it is all about putting America back to work.
For GM and Ford, the talks will be about getting labor costs in line with foreign rivals.
Ford's hourly labor costs are at $58, compared with about $50 for Asian automakers in the U.S.
The carrot: Jobs
Automakers often use job commitments as leverage during contract talks, and that will happened again this year.
One difference this time around, however, is that in the past two years automakers have already announced 13,000 U.S. jobs are coming, even before the start of formal negotiations.
In June, Chrysler said it would add 268 jobs at its Trenton North engine plant.
In May, GM said it would create or retain about 4,000 jobs in eight states over the next 18 months.
GM commented that these were investments that were done to continue to move their business forward, and should not be read as negotiating tactics.
Despite those announcements, many of the 1,700 Ford workers in Flat Rock are worried about Mazda's decision to end production of the Mazda 6.
One assembly worker comment that this is a little scary, and they would like to get their concessions back, but definitely job security is more important.
And in St. Paul, Minn., where Ford plans to discontinue the Ranger pickup in December, the mood for about 750 workers is also grim.
Estimates are that three plants each at Ford and GM are in danger of eventual closure or of not being reopened.
For Ford, those plants are in Minnesota, Flat Rock and Avon Lake, Ohio. Ford makes the ever-popular Econoline van at Ohio Assembly but could make the next-generation model at another plant.
Meanwhile, the UAW has been publicly pressuring GM to keep its pickup truck plant in Shreveport, La., open and re-open plants in Spring Hill, Tenn., and Janesville, Wis., that have been on standby since the bankruptcy in 2009.
GM could move production of the GMC Canyon and Chevrolet Colorado from Shreveport to a plant in Wentzville, Mo. That would help fill the capacity of the Wentzville plant, which is operating on one shift.
Even if the plants closed, many UAW workers would be able to keep their jobs by accepting the already-announced new positions in other locations, although they'd likely have to move to another state to take them.
'Vying for new work'
To be sure, the danger of plant closures and job disruption is lower than in 2007, when automakers were losing billions and their labor costs were far higher than Asian rivals.
But the dramatic restructuring over the last several years has left many plants with underutilized space.
In Brook Park, Ohio, UAW Local 1250 is hoping Ford's engine plant is picked for a four-cylinder version of the EcoBoost engine. That could bring 300 more jobs to the plant.They are a strong advocate that it should be built in Cleveland, but every other plant is vying for new work.
As the UAW fights for jobs, and the automakers work to lower labor costs, the two sides could find common ground.
That's because the automakers can lower their labor costs by hiring new workers an entry-level wage rate of $14 and $16 per hour, thereby lowering their average labor cost per worker.
Under the current contract GM and Chrysler can hire an unlimited number of entry-level workers until 2015 while Ford's contract is capped at 20 percent.
Already, Chrysler has lowered its total labor costs more than Ford and GM because it has filled many of the more than 2,800 jobs it has announced since June 2009 with entry-level workers.
That has helped Chrysler cut its total labor costs per worker from nearly $76 per hour in 2006 to $49 per hour in 2010.
Ford could reduce its total hourly labor costs by as much as $3 per hour to $55 per hour if it hires the maximum amount of entry-level workers allowed under its current contract. But it cannot do that unless older workers retire, and many are reluctant to do so given Ford's success, which comes with annual bonuses.
The UAW plans to push for an increase in the entry-level wage, which is about half of the regular $28 per hour. They feel entry-level may not be a good middle-class standard of living today, so they want to figure out a way to get more income to those workers.

FIAT TO TAKE OVER CHRYSLER

Chrysler Group, newly profitable and confident in its revamped products, will soon sever its ties with the U.S. government after most, but not all, of the bailout loans it got two years ago are repaid.
Italian automaker Fiat agreed late Thursday to buy the U.S. Treasury's 6% interest in Chrysler for $500 million. Once the deal closes, the government will no longer hold a stake in the auto company. Treasury officials said it could take up to three months to make sure the agreement meets regulatory approvals, but it will likely close more quickly than that.
The deal will give Fiat a majority 52% stake in the automaker, just two years after it agreed to manage Chrysler after its bankruptcy.
President Obama announced the agreement during a trip to a Chrysler facility in Toledo, Ohio.
The U.S. government will ultimately lose around $1.3 billion in the deal. The government authorized $12.5 billion in loans for Chrysler from the end of 2008 through Chrysler's bankruptcy filing in the summer of 2009. The Treasury Department said Thursday that Chrysler has repaid $11.2 billion — including $2 billion in undrawn loans — but it is unlikely to recover the rest. Government officials have long said that they didn't expect to recover the full amount they loaned to Chrysler and General Motors during the auto industry downturn, and that their top priority was saving thousands of auto jobs.
A representative from the Treasury stated they didn't do this to maximize return - they did it to save jobs. He noted that GM and Chrysler are hiring again and making new investments at U.S. plants, which wouldn't have happened had they gone bankrupt.
Fiat also agreed to pay $75 million for the right to purchase the Chrysler shares held by a trust for retired autoworkers. The Treasury Department will receive 80% of those proceeds, or $60 million, while the government of Canada will get $15 million. The trust holds a 47.5% stake in the company. It is expected to sell its shares when Chrysler holds an initial public offering, which could happen later this year or early next year.
Chrysler has made a remarkable turnaround in that time. Before entering bankruptcy proceedings, the company was nearly out of cash, starved after a decade under the ownership of German automaker Daimler and a private equity firm. It needed U.S. government money to survive. But in the first three months of this year, Chrysler made a net profit of $116 million and is forecasting 2011 earnings of $200 million to $500 million.
Under the leadership of the Fiat CEO, the company has cut costs and revived its sales by refurbishing most of its lineup of Jeep, Chrysler, Dodge and Ram vehicles. Sales of the Jeep Grand Cherokee were nearly three times higher in May than in the same month a year ago.
Fiat received a 20% stake in Chrysler after it emerged from bankruptcy proceedings in exchange for management expertise and technology. The Italian automaker has gradually raised its stake by meeting benchmarks set by the government. Last month, it paid about $1.3 billion to buy another 16% of the company.
Chrysler repaid the bulk of its loans on May 24, when it paid off $7.6 billion from the U.S. and Canadian governments. Chrysler repaid that money through a combination of bank loans, bond sales and money from Fiat.
Fiat's stake is likely to rise to 57% before the end of the year, when Chrysler meets another milestone set by the U.S. government: Producing a 40 mpg small car in the U.S. All told, Fiat has the right to purchase more than 70% of Auburn Hills, Mich.-based Chrysler.
This wasn't the first time Chrysler had to be rescued by the U.S. government. In the early 1980s the company, led by legendary pitchman Lee Iacocca, paid off $1 billion in government-guaranteed loans in three years.
The government still owns 26.5% of GM after selling part of its stake in GM's initial public offering in November. GM received $49.5 billion from the government in exchange for a 61% stake in the company. The Treasury Department has said it will hold off selling the rest of its shares until at least August, after GM reports its second-quarter results. The government would need to sell its remaining shares at $53 apiece to break even on its investment. On Thursday, GM's shares closed at $29.60.
The third Detroit automaker, Ford Motor, didn't seek a bailout.

Signs Of Hope For Detroit Auto Makers

from the Economist

AMERICA’S carmakers appear to have returned from the grave. This week the three big ones—Ford, General Motors and Chrysler—all had good news to report. Ford recorded a wholly unexpected profit for the third quarter of nearly $1 billion, thanks in large part to a huge improvement in its North American operations. Sergio Marchionne, boss of Fiat and now Chrysler, laid out a detailed five-year plan for restoring the American company to health in a seven-hour presentation. Most sensationally, GM’s board, citing both the improving business environment and the firm’s own recovering financial health, reversed its decision to sell a majority stake in Opel/Vauxhall, its European subsidiary, to Magna International, an Austrian-Canadian partsmaker, and Sberbank, a Russian bank. Both GM and Ford were also able to post year-on-year increases in sales in October, of 4.7% and 3.3% respectively.

A year ago, such a turnaround seemed unimaginable. GM had declared losses of $4.2 billion in the third quarter and Ford of $2.7 billion. Both firms had burned their way through nearly $7 billion of cash each during the quarter. The smallest of the three, privately held Chrysler, did not say how much it had lost, but an educated guess was about $2 billion.

The rest is history. The government stepped in to prevent a potentially catastrophic collapse of GM and Chrysler with $62 billion of Treasury loans and then shepherded both firms through “quick-rinse” bankruptcies that shrank their debt, cut the cost of obligations to retired workers and pruned their sprawling dealer networks. Italy’s Fiat was recruited to take over the management of Chrysler and share its advanced technology for small cars in exchange for a 20% stake. Ford struggled on, completing its restructuring without help either from the taxpayer or bankruptcy, thanks to the $23.6 billion it had raised in 2006, before the credit markets froze, by pledging all its North American assets as collateral.

All three firms will now be helped by what may be a quicker and stronger recovery in car sales, particularly in America, than most people are expecting. It will be a long time before sales return to 17m a year, the level until recently regarded as “normal” by an industry accustomed to pumping up demand with cheap credit and suicidal pricing. But Adam Jonas, an analyst with Morgan Stanley, points out that previous recoveries in car sales have been “V-shaped” (see chart), and that this one is likely to be too.

After sales hit a low this year of only 10.5m, Mr Jonas is forecasting sales of 12.8m next year and 14.5m in 2011. He is relying on the combined effects of broadly based economic recovery, especially in the housing market, and the unprecedented age of the car fleet, which has typically peaked after seven years of consecutive increases in cycles going back to 1970 (the last inflection point was in 2001).

Since emerging from bankruptcy GM and Chrysler have reduced the level of annual sales at which they can break even from more than 16m to 10m. Assuming that neither loses much more market share, both should start making an operating profit next year. Meanwhile Ford’s chief executive, Alan Mulally, said this week that he was changing his guidance for 2011 from break-even to “solidly profitable”.

There the similarities end. Of the three, unquestionably the best performer has been Ford. In America its market share has leapt by 2.2 percentage points over the past year to 14.6%, helped by the acclaim it has earned by avoiding bail-out and bankruptcy and by the good reception given to new models such as the F-150 pickup, the Taurus and the Fusion Hybrid.

However, the decision to forgo the fresh start of bankruptcy means that Ford’s debt will rise to around $35 billion after payments are made to a retired workers’ health-care fund. Ford is also paying a price for its independence in another way. Under the terms of the overhaul of GM and Chrysler in bankruptcy, the autoworkers’ union made substantial cost-cutting concessions in return for a big share of the equity in both companies—concessions that the union this week voted heavily against extending to Ford.

As for GM, fears that bankruptcy might terminally undermine customer loyalty appear to have been overdone. GM’s product portfolio, although some two years behind Ford’s in competitiveness according to Mr Jonas, is steadily improving and has the potential to make a similar turnaround. Better quality, advertising targeted on only four brands and the improvement in used-vehicle values that is coming from no longer chasing volume at all costs should all speed GM’s revival.

The decision not to part with Opel/Vauxhall, although infuriating to the German government and the unions, is a sign of GM’s growing confidence. It had never wanted to sell Opel, which despite being lossmaking is GM’s main repository of expertise in technologies for smaller cars. But it felt it had no option until the European Commission forced the German government to promise that a proposed €4.5 billion ($6.7 billion) loan would be available to any investor, and not just Magna. Keeping Opel will allow GM to mimic Ford, which plans to meet growing demand for small and medium-sized cars by manufacturing in America products first developed in Europe, such as the new Fiesta.

Despite a typically bullish performance by Mr Marchionne on November 4th, doubts about the future of Chrysler will be harder to dispel. In contrast to Ford and GM, Chrysler’s sales last month were 30% down on a year ago. It is hamstrung by an absence of new models and negative reports on the quality of its vehicles.

Perhaps the best news that Mr Marchionne delivered was that Chrysler had $5.7 billion of cash at the end of September, compared with $4 billion when Fiat took over in June, and that it should make a small operating profit next year—testimony to phenomenal cost-cutting in bankruptcy. The relentlessly upbeat presentations by a succession of Chrysler executives (nearly all them new to their posts) provided a road-map of how the partnership with Fiat will transform the company and its ability to develop at speed cars that customers will want to buy.

Together they made Mr Marchionne’s target of doubling worldwide sales to 2.8m by 2014 sound almost achievable. The worry is that there is no quick fix for the lack of new products. For the next couple of years Chrysler will have to rely mainly on facelifts of existing models and urgently-needed improvements in quality. The biggest question is whether that will be enough to lift Chrysler’s market share well above its current 6% before a range of new products based on Fiat’s platforms and powertrains starts to appear in 2012. If Ford and GM are in the recovery ward, Chrysler remains on the critical list, for now at least.

Flat Rock Mustang Plant Rejects Concessions

from Bloomberg

Ford Motor Co.’s Mustang plant in Flat Rock, Michigan, became the fifth factory to reject contract concessions the automaker is seeking to match those the United Auto Workers granted its U.S. rivals.

The vote at UAW Local 3000 was 73 percent against the concessions, said Tom Spears, the local’s president. The factory has about 2,200 employees, is jointly owned with Mazda Motor Corp. and also builds the Mazda6.

“There are concerns about our plant’s future because we have no product beyond 2011,” Spears, who backed the contract changes, said in an interview. “The membership did not have a warm reception to additional contract modifications. We did this in ‘05, ‘07 and in February and now they’re back at us again.”

Ford, the only major U.S. automaker to avoid bankruptcy, won support from UAW local leaders Oct. 13 on an agreement to grant concessions similar to those given to General Motors Co. and Chrysler Group LLC. The changes include a six-year ban on some strikes and a freeze on wages of new hires until 2015.

Labor costs at Ford aren’t uncompetitive with its U.S. rivals in the “near term,” Mark Fields, the company’s president of the Americas, said on Bloomberg Television. The automaker is concerned about the longer term, he said.

‘Open’ Relations

Ford’s relations with the UAW “are very open and transparent,” said Fields, who declined to comment on the ratification vote. “We share with them the challenges of the business and we focus the majority of our discussions on keeping Ford competitive.”

Since Dearborn, Michigan-based Ford’s 41,000 U.S. hourly workers began voting Oct. 22, five plants representing about 10,170 workers have turned down the givebacks. An axle factory in Sterling Heights, Michigan, rejected it yesterday by 71 percent, said Brian Pannebecker, a production worker who voted for the revisions.

“People don’t understand the relationship between job security and competition in our labor costs,” Pannebecker said in an interview. “People are starting to want to buy a Ford product because we’re making it on our own without government help. Now we’re turning back the clock and making ourselves less competitive than GM and Chrysler.”

Workers at a Ford Escape factory near Kansas City, Missouri, voted 92 percent against the concessions on Oct. 25. A transmission plant in Livonia, Michigan, and a parts factory in Plymouth, Michigan, also rejected the contract revisions, union officials said. Factories in Cleveland and Wayne, Michigan, representing about 4,770 workers, have approved the changes, union officials said.

Voting concludes Oct. 31.

Bonus Offer

The automaker is offering workers a $1,000 bonus tied to quality and productivity targets and pledges of new production at some factories to help win approval of the deal. The Flat Rock plant was promised continued Mustang production only “through the current life cycle,” which ends in 2011, according to UAW highlights of the agreement.

UAW spokesman Roger Kerson didn’t immediately respond to a telephone call and e-mail seeking comment.

The concessions are the second round of givebacks sought by the automaker this year. In March, 59 percent of production workers and 58 percent of skilled-trades employees approved concessions that included giving up annual bonuses and cost-of- living increases and some layoff benefits.

Ford fell 4 cents to $7.43 at 3:03 p.m. in New York Stock Exchange composite trading. The shares have more than tripled this year.

Toughening Competition Means Honda Motor May Need To Innovate Faster

From Forbes

NOVI, Michigan -- Honda Motor Co.'s top U.S. auto executive says the company may have to update its models faster because the competition is getting so tough in segments where the Japanese automaker has strong sales.

John Mendel said Honda ( HMC - news - people ) will stay ahead of the pack with new technology and by introducing models in new market sectors, but he concedes it may have to update its cars more frequently as competitors keep getting better in quality, reliability and fuel economy.

"We don't have the gap that we had years ago," he said Friday just before unveiling a new Accord crossover vehicle in suburban Detroit. "There's nobody out there building junk any more."

The Accord, Honda's top-selling car and traditionally among the best sellers in the U.S., Honda's largest market, is under serious assault from prime competitors Toyota Motor Corp. ( TM - news - people ), Nissan Motor Co. ( NSANY - news - people ), Ford Motor Co. ( F - news - people ) and General Motors Co.

All four competitors have four-cylinder midsize models that have passed the Accord in highway gas mileage, and most have received good marks from independent reviewers.

Mendel, speaking before he introduced the new Accord Crosstour, said in some hotly contested market segments, Honda may have to speed up its normal two-year cycle of refreshing vehicles and roughly five-year cycles of total redesign.

Honda is scheduled to update the Accord next year and redesign the car by 2013. But Mendel says the redesign could take place before then as Honda introduces new technologies to raise fuel economy.

New four-cylinder versions of GM's Chevrolet Malibu (33 mpg highway) and Ford's Fusion (34 mpg highway) have passed the Accord's 31 mpg in highway gas mileage, even though Honda usually leads the pack. Toyota Motor Corp. updated its top-selling midsize Camry for 2010 by adding a six-speed manual transmission, boosting highway mileage to 33, and Nissan's Altima gets 32 mpg.

Both GM and Ford used six-speed automatic transmissions to raise highway mileage with taller gearing that makes engines more efficient by working less. The Accord, though, still has a five-speed automatic.

Honda, Toyota and Nissan have dominated the critical midsize car market for years as Detroit automakers spent most of their research dollars on larger vehicles, said Joe Barker, senior manager of North American vehicle sales forecasting for the CSM Worldwide consulting firm in Northville, Michigan.

But in the past two years, Ford, GM and Korean automaker Hyundai Motor Co. have invested heavily in midsize cars and improved fuel efficiency, safety, ride and performance, pulling even or ahead of Honda and Toyota, Barker said.

"The competition, especially in Honda's sweet spot, is only going to intensify in the coming years," Barker said.

Honda, Mendel said, normally waits for the redesign cycle to introduce new technologies that would boost fuel economy, but he wouldn't say specifically what the company might do with the Accord.

Honda already has developed six-speed automatic transmissions for two new models in its Acura luxury brand, the ZDX sport coupe and the MDX sport utility vehicle.

So far this year, Honda's U.S. sales are down 25 percent compared with the first nine months of last year, but its market share has grown from 11 to 11.3 percent. Overall, U.S. auto sales are down 27 percent, according to Autodata Corp.

Mendel says he is constantly thinking about how to balance keeping the company's products fresh against the cost of more frequent updates. On some models, like the Accord, leasing patterns have grown longer, so people don't trade vehicles as often. But that has to be balanced against the competition, as well as how much the company is able to do in the two or three-year refresh, he said.

A lot can be done in mid-cycle updates with new engines or transmissions and a new body style that can change a car's looks as opposed to redesigning the whole vehicle, Mendel said.

"So you get new for less than the cost of new, at least in the customer's eyes," he said.

The redesigned Accord certainly will get new engine and transmission technology as well as aerodynamic improvements, Mendel said. Stricter government fuel economy standards also may force Honda to update vehicles more frequently, he said.

The current Accord, Barker said, is still among the best cars on the road. He says Honda will catch up in fuel economy when it does the updates, but staying on top won't be as easy as in the past.

"I think that even though Honda will continue to invest in technology and continue to strive to be a segment benchmark, it has its work cut out for it," Barker said. "The competition from General Motors and from Ford and Hyundai is only getting better."

Auto Rescue May Be a Bridge to Nowhere

As posted by: Wall Street Journal

Sometimes, hard choices have to be forced. That is a beauty of bankruptcy court, where a judge can require investors, creditors, employees and management to reach difficult compromises.

The U.S. government has chosen a different route for General Motors and Chrysler, extending $17.4 billion in temporary assistance, or bridge loans. Washington hopes to coax agreements needed to restructure the companies.

While the aim of buffering the U.S. economy from auto-maker bankruptcies may be laudable, it could prove tough to achieve.

General Motors Corp. CEO Rick Wagoner smiles during a news conference at the company

One potential stumbling block: getting bondholders to convert two-thirds of their debt to new equity, as called for under the aid plan. Such concessions are standard in bankruptcy, but outside court they can't be unilaterally imposed.

So some bondholders may hold out for better terms. Others might refuse altogether because they feel bankruptcy is inevitable, meaning any new stock will prove worthless. United Auto Workers protests of concessions being asked of them may only underscore to bondholders that they too should balk.

A GM spokeswoman said the company recognizes that bondholder concerns will be an issue. But since "the goal is for a stronger, more viable company," many bondholders are likely to agree, she added.

Holdouts may be subordinated by new bonds issued under a debt-for-equity swap. Yet some could decide this isn't such a risk, since their claims will remain whole and the company may be on a sounder footing.

There is an added wrinkle. A clause in indentures to some GM bonds mandates that, under certain conditions, liens on domestic manufacturing assets given as part of new debt issues require that existing bondholders receive similar security. This could potentially turn unsecured bondholders into secured lenders, giving them less incentive to take a haircut. How that will play out is unknown.

What is clear is that the loans are no guarantee these companies will survive. The assistance may end up being a bridge to nowhere.