DETROIT — At Ford Motor Co. they called it "Blue," a team set up around the year 2000 to design an array of small, fuel-efficient cars to compete with the Japanese.
It didn't get far because, with Ford's high labor costs, no one could figure out how to make money on low-priced compacts. Besides, the automaker was racking up billions in profits by selling pickups and sport utility vehicles. Times were good and gas was cheap.
"Blue" is only a small blip in automotive history, but it tells a big part of the story about why Detroit auto makers are in a mess so critical that they could be only months away from bankruptcy.
Critics say leaders over the years at Ford Motor Co., General Motors Corp. and what is now Chrysler LLC were slow to take on unions, failed to invest enough in new products, ceded the car market to the Japanese, and were ill-prepared for the inevitable rise in gas prices that would make their trucks and SUVs obsolete.
"There's been 30 years of denial," said Noel Tichy, a University of Michigan business professor and author who ran General Electric Co.'s leadership program from 1985-87 and once worked as a consultant for Ford. "They did not make themselves competitive. They didn't deal with the union issues, the cost structures long ago, everything that makes a successful company."
Big 3 burn through cashIndustry representatives say their critics are simplistic, giving them no credit for huge progress this decade in cutting costs, raising productivity, and building competitive cars while handling multiple government regulations and a powerful labor union.
"In the last five years, there's been more restructuring done in the automotive business than any other business in the history of the United States," said Tony Cervone, a GM vice president of communications.
Whatever the reasons, the Detroit Three are closer to collapse than ever and probably won't make it without billions in government loans.
On Friday, GM posted a $2.5 billion third-quarter loss and ominously said it could run out of money before the end of the year. It reported that it had $16.2 billion in cash available at the end of September.
Ford reported a $129 million loss but said it burned up $7.7 billion in cash for the period. It had $18.9 billion on hand as of Sept. 30.
Industry analysts believe Chrysler, now a private company that does not have to open its books, is as bad off as GM as U.S. sales continue to plummet.
The industry's path to cliff's edge is a complex one.
The demise started in the 1980s when Toyota Motor Corp. and Honda Motor Co. mastered building reliable and efficient cars while the Detroit Three lagged.
As GM, Ford and Chrysler saw their market share start to slip, the '90s arrived and high profits returned as Americans snapped up pickup trucks and SUVs. Ford, GM and Chrysler put most of their resources into trucks and SUVs, which brought in billions in profits that covered growing health-care, pension and labor costs.
When the SUV and truck market started to fade in the mid-2000s, executives realized that their business model would no longer work and began globalizing their vehicles, streamlining manufacturing processes and developing new and better cars.
The UAW, realizing that the companies were in trouble, agreed to a landmark new contract last year that nearly eliminated the labor cost difference between the Detroit Three and the Japanese, shifting retiree health-care costs to a union-administered trust fund.
But just as the cost cuts started to take hold and new products were rolling out, gas prices rose rapidly to around $4 per gallon and Wall Street collapsed, virtually eliminating credit that 60 percent of car buyers need.
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