Is Big Auto Really the Answer?

Even when cultural clashes or company rivalries are absent from the picture, robust size can cripple an automaker. Once you've achieved the economies of large-scale production and established a sprawling sales channel, it's difficult to make quick moves to adapt to changing market forces. Auto executives quickly learn how difficult it is to shrink a business, even just a bit, as opposed to growing one.

General Motors is a class study in just how difficult that process is, spending the past decade trying to adjust to smaller volumes while maintaining high fixed costs. One of the dilemmas it has faced is trying to keep its stable of brands focused while keeping plants running, because shuttering plants had little impact on labor costs. So if you're the person running Pontiac, you might be perfectly happy to offer specific sporty products like the G8, Solstice, and Vibe. But to keep GM plants running, you also have to offer G3, G5, G6, and Torrent models that are repackaged Chevys. Saturn has been similarly burdened with this concept.

Toyota is often cited as the sharpest blade in the automotive management drawer, and the venerable Japanese company has an enviable track record of success. In fact, it has become the world's largest automaker. But Toyota has discovered that size doesn't equal prosperity and is reeling under the sudden market downturn. And while there are always ups and downs, when you are a giant, the pain is more intense. Today, Toyota has to decide how to rationalize two huge new production facilities in North America; one that's underutilized and another that hasn't yet produced its first vehicle. Sound familiar?

Until it lost money for the first time this year, Toyota was recognized as the world's most profitable automaker. But according to some reports, Porsche earned a profit of $28,000 per vehicle in 2007. Now that it has merged with Volkswagen, a company that has far higher volume but nets just $400 per car in profit, the dynamics will change. Will Porsche remain quick and flexible? Will the quality change? Time will tell.