Detroit automakers at the brink as oil surges

By David Bailey and Kevin Krolicki - Analysis

DETROIT (Reuters) - For two years, U.S. automakers have told investors, creditors and workers to remain patient with a wrenching, industry-wide restructuring because a turnaround was just around the corner.

But with oil prices surging, the U.S. auto market bumping along at near-decade lows and ever more Americans defecting from trucks and sport utility vehicles, a new risk looms for Detroit: the future may be slipping out of its control.

Ford Motor Co's (F.N) warning on Thursday that it would miss its goal of returning to profitability in 2009 underscored the growing economic pressure on the battered industry.

For now, Ford, General Motors Corp GM.N and Chrysler LLC have the cash and credit to weather a continued slump as they play for time by selling more assets and raising financing, according to equity and credit analysts.

"They have some levers to pull and some time to work it out," said Pete Hastings, a bond analyst with Morgan Keegan.

But if the U.S. auto market fails to bottom out in 2008 or if oil prices rise unabated, the threat of failure grows in an industry struggling with a third straight year of lower sales.

Toyota Motor Corp (7203.T) and Nissan Motor Co (7201.T) have also both warned that the U.S. industry would hurt results, but both remain profitable and neither relies as heavily on truck sales as the Detroit Three.

In the meantime, U.S. gasoline prices have been climbing steadily, and as the average price crossed $3.50 per gallon this month, Ford saw signs of worse trouble ahead.

"We saw a real change in the industry demand for pickup trucks and SUVs in the first two weeks of May," Ford Chief Executive Alan Mulally said. "It seemed to us that we reached a tipping point where customers began shifting away from these vehicles at an accelerated rate."

Or as Erich Merkle, director of forecasting for consulting firm IRN Inc, put it: "What we are seeing is a massive rotation out of trucks and into cars."

As of April, GM, Ford and Chrysler had already seen their combined share of the U.S. market slip below 50 percent. By contrast, at its recent peak in 1980, GM alone had 45 percent.

But Toyota overtook Ford as the number-two player in the U.S. market in 2007, and Honda Motor Co (7267.T) is on track to unseat Chrysler as number three.

Driving that gain is the market-leading fuel economy of Honda's fleet and a line-up that relies on light trucks for about 43 percent of sales versus Chrysler's 68 percent.

"In the short term, all three companies will suffer from misaligned product portfolios," Fitch Ratings Managing Director Mark Oline said.

Peter Morici, a University of Maryland economist and a critic of the strategic thinking in Detroit, questioned whether the crisis had fully sunk in, even now.