General Motors

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The global automotive industry is fraught with irony. North American players are having success in Asia (read China) while floundering at home. Japanese players are meeting with success in North America while remaining relatively passive about the ever-wakening automotive giant in their own back yard - again, China. Once the yardstick with which automotive engineering was measured, the Germans are suffering from low quality. General Motors is second only to the US government in health care spending. The company provides cushy benefits for more than a million Americans at an annual cost of more than $100 billion; $1,500 of every GM car sold goes to pay for those benefits. In order to keep paying out benefits GM has done everything from selling off chunks of its profitable GMAC subsidiary and increasing its debt to massive job cuts and plant closures. Financial analysts and bond investors think GM has enough cash for its rob-Peter-to-pay-Paul strategy to be sustainable for two or three years, then bankruptcy becomes more of a possibility. GM has a lot of work to do. It is trying to breathe excitement into a ho-hum product lineup, cut costs, and stave off competitors that eat up its market share. If there is one bright spot for GM it is its domination among western carmakers in China. Ford is focused on cutting jobs and saving cash. The company hopes to stop the hemorrhaging from its North American business which in 2005 lost $1.6 billion (excluding taxes and other charges). In early 2006 Ford made public the details of its second sweeping turnaround plan in four years. The nuts and bolts of the plan could hardly be called innovative -- massive job cuts and plant closures. But the plan does address Ford's dwindling market share by launching new and exciting products - chiefly hybrids. The company is also focusing on building cars, not renting them. Ford sold its Hertz car rental business late in 2005. Meanwhile Ford also is looking to China for profits but is lagging behind GM, Volkswagen, Honda, Toyota, and even Hyundai for market share. DaimlerChrysler had a changing-of-the-guard when Jurgen E. Schrempp stepped down in early 2006 and made way for Dieter Zetsche. Zetsche has been a rainmaker as the head of the Chrysler division, and it is hoped he can have a similar effect on the beleaguered Mercedes division back home in Germany. Mercedes has been plagued by slow sales, falling market share, and shoddy quality. Meanwhile, spurred by fresh products, Chrysler is enjoying a resurgence. In fact as GM and Ford struggle to cut capacity, Chrysler announced in early 2006 that it would increase North American capacity by as much as 43% by 2007. Zetsche is also focusing on finishing what Schrempp started -- more cooperation between the Chrysler and Mercedes divisions. Volkswagen is suffering from high costs, high sticker prices, and low quality. Its VW brand is in decline both at home in Europe and in North America. The company has even lost its leading position in China to GM. The company has admitted it has problems but like GM its woes stem from powerful labor forces. To be successful VW has to battle powerful German labor unions to lower wage costs, trim jobs, and eliminate its 30% manufacturing overcapacity. Toyota and Honda bring a little boom to the gloom. The two companies are successful in their home markets as well as those in Europe and North America. They both are leaders in the development of hybrid technology which, as fuel prices soar, will almost certainly be a key product strategy as time goes on. However, the two companies are biding their time in the world's hottest car market, China. Not only are they being outpaced by the likes of Ford and GM, they are being beaten by Hyundai - a second tier player. While Toyota admits it has gotten a slow start in China, did not Toyota and Honda come late to the US market?

Abercrombie and Fitch

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Trading on its century-old name, Abercrombie & Fitch (A&F) sells upscale men's, women's, and kids' casual clothes and accessories -- quite a change from when the company outfitted Ernest Hemingway and Teddy Roosevelt for safaris. A&F has about 850 stores in North America (mostly in malls) and also sells via its catalog and online. A&F targets college students, and has come under fire for some of its advertising campaigns, as well as for some of its short-run products. The company also runs a fast-growing chain of teen stores called Hollister Co., and a chain targeted at boys and girls ages seven to 14 called abercrombie. Its newest format, RUEHL, is a Greenwich Village-inspired concept for the post-college set.

A&F's carefully selected college-age sales staff and photos of twenty-something models adorning the walls imbue its main stores with an upscale fraternity house feel. Its image as the clothier for a preppy social elite has, in some circles, earned its clientele the nickname "Aber-Snobbies."

Although the company has ceased publication of its magazine and toned down its product lines, A&F has not overtly stopped antagonizing conservatives.

In 2004, A&F launched a new brand aimed at its customers who have grown older -- a relative term for A&F. The brand, called RUEHL, runs seven stores with eight more scheduled to open at major shopping centers in Honolulu, San Francisco, Las Vegas, and Garden City, New York. The stores target customers aged 22 to 30, traditionally J. Crew and Banana Republic customers, offering hip styles at lower prices. The company is also considering revamping the A&F Quarterly that was discontinued in late 2003.

Adidas America, subsidiary of the German sporting goods giant adidas, has filed suit against A&F to protect its trademark three-stripe logo, which it argues the company copied for its latest line of casual apparel.

In response to healthy international Internet sales, A&F opened its first five stores in Canada in 2005 and expects to open its first shop overseas in London in early 2007. The chain plans to open additional flagship stores in Las Vegas and Los Angeles this year. Overall in 2006 the company plans to add as many as 110 new stores and to remodel between 10 and 20 of its existing shops.

A&F is searching for a new president and COO following the resignation of Robert Singer, after only 15 months with the company. Singer's abrupt departure was due to a disagreement over the company's international expansion strategy.

The SEC has launched an investigation concerning trading in A&F's common shares.