Detroit has been home gym to Motor City muscle for as long as auto industry spectators can remember.

Ninety-eight-year-old General Motors Corp. still wears the belt – heavyweight champion of the world.

Ford Motor Co., after 103 years in the ring, clings to a precarious hold on the No.2 ranking in the U.S.

And scrappy Chrysler Group continues to get knocked to the canvas, only to stagger back to its feet for one more round.

But somewhere along the line, Detroit’s Big Three let down their collective guard. They have lost a combined $11.3 billion so far this year, and together their market share has fallen to 55.0% in the U.S., from 72.7% two decades ago.

Worse, as they grow softer around the middle, hard-charging, flat-bellied competitors from Japan and South Korea are leaving their mark.

By 2013, when the latest round of restructuring moves is expected to be completed, GM, Ford and Chrysler will be building 1.5 million fewer vehicles in North America than they did last year and more than 3 million fewer than a decade ago.

Their share of North American vehicle output will mirror their market share at 55.0%, a sharp decline from 66.5% in 2005 and a dominating 81.3% of total production in 1995, a Ward’s forecast shows.

Nineteenth-century humorist Henry Wheeler Shaw wrote, “Adversity has the same effect on a man that severe training has on a pugilist – it reduces him to his fighting weight.”

Pressured by seemingly unstoppable opponents such as Toyota Motor Corp., Honda Motor Co. Ltd. and up-and-comers Nissan Motor Co. Ltd. and Hyundai Motor Co. Ltd., the Big Three are back in the gym in a desperate attempt to transform themselves into lean, mean, fighting machines capable of going the distance with whomever gets in the ring.

But it’s a tricky process, and how deftly they engineer these makeovers will determine their futures. A successful turnaround would be one for the ages, a match certain to be studied for decades. Failure means the end of these companies as we’ve known them and a greatly reduced role for Detroit in the auto industry both at home and abroad.

When all is said and done, GM will have shrunk to the size of Ford by 2008 (cutting North American capacity from 6.2 million units to 4.3 million), and Ford will drop down to Chrysler’s weight class (from 4.6 million vehicles to 3.3 million), says Sean McAlinden, chief economist and vice president-research at the Center for Automotive Research (CAR) in Ann Arbor, MI.

It amounts to one of the largest restructurings in Detroit history, with 120,200 jobs at stake, McAlinden says.

To succeed, GM and Ford must tackle some complicated logistics and find a way to keep their staffs motivated at a time when thousands of talented employees are being asked to leave. Chrysler, in the midst of its own self examination, may face the same task.

And all three will have to keep pace with developments in alternative powertrains and sudden shifts in the market, while battling rising material costs and complications caused by a supply chain riddled with financial problems of its own.

They’ll also have to keep their quality guard up, maintaining the positive momentum evidenced in recent ratings from Consumer Reports magazine.

Starving themselves of product or de-contenting to save money isn’t the regimen that will lead to long-term financial success.

Given the chance, bookmakers would lay odds the Big Three won’t be able to slash as many as one in three employees and still compete in today’s aggressive global marketplace.

But Motor City executives appear confident of a Rocky-like finish.

“Our plan is to be nicely profitable in the U.S.; continue to launch a lot of new products in a very quick cadence; re-emerge as the design leader in the U.S. and hopefully the design leader, period,” says Bob Lutz, GM vice chairman-product development.

But getting from here to there won’t be pain free.

As Ford works to shed some 10,000 salaried and 30,000 hourly positions and shutter 16 plants by 2008, it already is evaluating its future strategies as a smaller auto maker. Insiders concede one misstep could lead to a potential “brain drain” and leave the company devoid of resources.

“All areas (will) be going down in head count and resources,” notes Chief Financial Officer Don Leclair.

Ford will have to reorganize itself “to adapt to that reality,” he says. “Each area is going through its own planning, so the total adds up to the target we need to achieve.”

Ford is taking great pains to avoid the “lawn mower” approach as it methodically cuts an additional 10,000 white-collar jobs on top of the 4,000 announced in January, says Mark Fields, president-The Americas.

“Some areas are relatively lean, but we’re not walking away from the overall number we laid out,” says Fields, who oversaw a similar downsizing as CEO of Mazda Motor Corp. in the 1990s.

Ford will retain key personnel and resources in engineering and product development “to make sure we back up our claim this is a product-led recovery,” he promises. “We’re making sure we have the right people who want to stay.”

Derrick Kuzak, group vice president-product development-The Americas, says the trick will be to maintain sensitivity for departing workers, while seeing to it their experience is not lost.

“We need to ensure there’s a continuity of knowledge and not (a loss of) knowledge as they leave us,” an optimistic Kuzak says, in part by “aligning (departing workers) with other individuals to transfer that knowledge to people staying.”

David Cole, chairman of CAR, says it is crucial Ford remain highly selective in determining who goes, offering a “stay bonus” to critically skilled people.

GM began its current restructuring effort in 2005, when some industry watchers were insisting bankruptcy was a matter of when, not if, for the auto maker being pummeled by the crushing blows of its legacy costs.

To put it in perspective, McAlinden says GM has 4,800 workers on paid medical leave; 2,700 in the Jobs Bank (down from 10,000 at one point); 2,500 on layoff; and 1,500 union officials on company-paid leave. That totals to 11,500 “non-workers,” and equals 43% of Toyota’s 27,000-employee workforce in North America, he says.

But GM is tackling the problem, and McAlinden says by next summer the number of non-workers will be down to several thousand.

On the salaried side, GM is using attrition to lop 7% from the payroll this year. That includes 1,200 engineers, but Troy Clarke, president-GM North America, insists the auto maker is not walking away from developing vehicles in the U.S.

Instead, he says, GM is just trimming the fat, erasing jobs no longer vital and cutting salaried employees who “weren’t pulling their weight.”

The result is a more effective organization overall, he says.

“We trimmed redundancy and didn’t cut into bone or muscle,” agrees Terry Woychowski, chief engineer for GM’s GMT900 fullsize trucks. “We didn’t miss a beat,” he says of the new pickups created with fewer engineers and half the prototypes.

Then there’s Chrysler, which finds itself on the ropes even after a 3-year cost-cutting effort that resulted in 35,000 fewer jobs and seven fewer plants – plus reductions at five more facilities – between 2000 and 2004.

Detractors once again are calling on parent DaimlerChrysler AG to throw in the towel and spin off or sell the beleaguered North American operation.

“We’re looking at all areas of the business to see what we need to do,” says Tom LaSorda, Chrysler president and CEO.

Everything is on the table as DC Chairman Dieter Zetsche prepares the latest restructuring strategy that will be laid out to the board of directors in January. Targeted is a $1,000-per-unit cut in the cost to build cars and trucks.

Executives are counting on Chrysler’s “unique culture” to drive the turnaround.

“We react very quickly,” says Frank Ewasyshyn, executive vice president-manufacturing. “The culture has to be one that really believes it can change. It’s like anything. If you’re going to go on a diet, you’d better be convinced you need to.”

And the Big Three definitely need to, says analyst McAlinden. “You’ve got to shrink to survive and shrink to be profitable in Detroit today,” he says.

The targets differ for GM, Ford and Chrysler, but all agree they’ll need to find a way to do more with less to avoid compromising product programs.

They share a common strategy as well: Leverage global assets to cost-effectively develop products for all regions using common parts and manufacturing processes to reduce costs.

But they’ll have to execute that fight plan better than they have in the past.

The Big Three have been described as global companies forever, says Ronald E. Harbour, president of Harbour Consulting. “Have they ever operated like that? Not in my memory. Never.”

But that is finally changing, he concedes.

“The difference in the industry in the next five years is (the Big Three) will become much more global,” Harbour says. “It doesn’t take a rocket scientist to think this out. But if a company truly operates globally, what they can do is optimize capacity, product development, engineering resources.”

At GM, a 7-year effort to build uniform global platforms across four geographic regions is about 80% complete, with all new vehicles now on global architectures, Jim Queen, vice president-global engineering, says.

GM has established worldwide “homerooms” of design and engineering expertise. Operations in Russelsheim, Germany, are focused on midsize cars, while South Korea is the center for mini and compact models and Australia is taking the lead on rear-drive large cars. North America remains responsible for SUVs, fullsize pickups and many cross/utility vehicles.

Europe’s Adam Opel GmbH is merging its design and engineering with Saturn Corp. in the U.S., and a similar symbiosis is occurring between Cadillac and Saab.

Efficiencies are coming from greater use of virtual design and engineering, says Woychowski, adding GM will develop the next-generation GMT1000 fullsize trucks even faster than it did the new GMT900s.

GM “finally is acting as one single auto maker,” Lutz says.

Historically, GM operated as four separate companies around the world, with North America, Europe, Asia/Pacific and Australia each with its own practices, he says.

That approach “clearly was not working for us anymore.”

Today, GM is taking a global approach to everything from product development to sourcing – and 2006 marks the first time the auto maker is working with global budgets for all aspects of its business.

“We’re now running the play globally,” says Gary Cowger, vice president-global manufacturing and labor relations. “The pace really picked up as we changed organization structure.”

While the product-development budget hasn’t increased, the global process means GM can do more with less, Queen says.

Some $1.5 billion in global cost savings generated in the last several years has been plowed back into engineering, rather than the bottom line, Queen says. At the same time, GM now is reaping about 20% material cost savings on parts associated with these global vehicle architectures.

“GM uses its global scale better than anyone else,” Lutz says bluntly. “There are billions (in savings) to be gotten just by making one GM out of four GMs.”

Queen agrees. “This is very different for GM. We like the fact we have boots on the ground in every major market.”

Even DC, which initially balked at exploiting global synergies, now is sharing best practices and reaping the benefits of global procurement and common parts between its Chrysler and Mercedes-Benz operations. DC says cost-cutting teams at Mercedes have identified more than 100 component modules that will be available for use on all vehicle lines.

At Ford, global platform development and sharing is occurring at a rapidly increasing pace among its many brands under the Global Product Development System the auto maker has adapted from Mazda.

GPDS, Ford says, will trim about 10 months off product development time and reduce engineering costs as much as 60% through greater use of computer-aided engineering and new ways of tracking materials.

Mazda’s Mazda6 platform, for example, underpins the Ford Fusion, Mercury Milan and Lincoln MKZ, as well as the new Ford Edge and Lincoln MKX CUVs.

Additionally, the high-volume C1 platform is the basis for everything from the Ford Focus to Mazda3 and Volvo S40. Mazda also is developing a new B-segment architecture for all to use.

Architecture sharing will allow Ford to develop new models at a greater pace, Joe Hinrichs, vice-president-North American manufacturing, says.

Ford insists its accelerated Way Forward restructuring effort will be product led, vowing 70% of Ford, Lincoln and Mercury vehicles – including the crown jewel F-150 pickup – will be new or significantly upgraded by 2008. Even while cutting annual operating costs $5 billion, it is pledging to spend $7 billion each year on new vehicles.

“We’re actually delivering more product than we were in the past, despite a reduced engineering workforce,” says Kuzak, who insists the belt-tightening has resulted in a more focused team. “Instead of having engineers spread across all different programs, they all now work together.”

In addition to the platform paring, “we’re also reducing the number of engines, transmissions and other parts,” he says.

The GPDS already is starting to show “dramatic benefits,” according to the Ford executive.

“We’re absolutely more competitive,” Kuzak says. “We can look at financial statements and look at R&D (research and development) as a percent of revenue and use that information to make sure our initiative is on track.”

But some industry watchers think there is too much ground to make up.

McAlinden says Toyota spends $8 billion on R&D, while GM allocates $3.5 billion and Ford shells out even less. The gap grows if spending is compared on a revenue-per-unit basis, he says.

Ford could fall further behind, reducing product spending as it vacates certain market segments, such as minivans, while Toyota expands its lineup to cover the gamut from subcompacts to heavy-duty pickups, McAlinden says.

“(Toyota) will fill in all the gaps and Ford can’t,” he says. “There’s nothing in the Ford pipeline except for three vehicles from the Oakville (Ont., Canada) assembly plant (Edge, MKX and the pending Ford Fairlane CUVs) and a minor re-facing of the Ford Five Hundred.

“Whoopdee do.”

The auto maker also will have to rely on a leaner design staff. About 30% of the auto maker’s 750 designers is expected to be cut.

But the upper echelon consisting of design chief J Mays and the 12 supervisors that report to him worldwide are safe, Mays tells Ward’s.

Ford considers styling its forte and is counting on that to bring it back from the brink once again. The auto maker is planning to make greater use of computer-assisted design capability to take up the slack and eliminate some of the need for costly, resource-draining prototypes.

“We have to keep our future intact,” Mays says of the importance of maintaining design capability.

Brain drain is an equally serious concern on the plant floor.

By the close of 2006, GM will have bid farewell to 34,000 of 112,800 hourly workers with an attrition program that sets the stage to close nine U.S. assembly plants and eliminate shifts in at least four others by 2008.

The auto maker expects to wring out $6 billion in annual structural costs this year and as high as $9 billion annually beginning next year, while reaching 100% capacity utilization in two years.

Some plants are losing half their workers, but GM’s Cowger says quality has not seen a drop as measured by direct-run rate, noting that figures remain higher than year-ago levels.

GM’s Clarke agrees the transition has gone smoothly. “Every one of these moves is mapped out,” he says.

GM replaced 20%, or 6,800, of the departing employees with temporary workers as of November, “so we wouldn’t have to worry about how you get the cars out the door the next day,” he says.

Clarke expects the number of temporary workers to drop by up to 5,000 as employees from Delphi Corp. flow back to GM, part of a bailout arrangement with the supplier. As of late November, Delphi had returned 3,400 workers to GM.

“That’s really what this restructuring is all about, so far,” McAlinden sums up. “Turning over legacy labor and starting from a new labor cost position.”

Harbour says GM, Ford and Chrysler are in better shape today to thin their ranks because manufacturing is more flexible and they have made progress in standardizing plants and work practices, making it possible to adjust the model mix if the market changes.

“Ten years ago, I think it would have been disastrous,” Harbour says of the massive restructuring effort.

However, he says it’s still too early to tell if there will be an impact on quality. Key vehicles to watch will be those introduced between now and next July as the workforce is transitioned.

Like GM, Ford is investing in flexible manufacturing and cites the measure as its “ace in the hole.”

“In the past, each (plant) was dedicated to one model,” Hinrichs says. Now, as Ford slates 16 facilities for the chopping block under the Way Forward plan, it will have multiple plants capable of building more than one model.

But flexibility is in the eye of the beholder.

“Ford will tell you they’re going to have 60%-70% of their plants flexible in the next year or two,” Harbour says, noting the auto maker’s definition of flexibility is multiple variants from a single architecture, rather than a plant that can build anything.

However, he still believes with the cutbacks and plant closings, Ford can get where it needs to be.

At Chrysler, flexibility means being able to produce three models and pilot a third at the same facility, and the auto maker employs a chain system where a dedicated plant serves as an extension of a flexible one to jointly respond to demand.

Leadership – CEO LaSorda helped develop the system – has embraced the adaptation of the Toyota Production System that Chrysler calls “Smart Manufacturing.”

The common approach to downsizing is retrenchment, Ewasyshyn says.

“You stop buying stuff,” he says, namely tooling. “That’s the classic approach.

But the preferred line of attack is to do things differently.

“If you’re going to do the same thing and just reduce the number of people, it doesn’t work,” he says.

Restructuring demands a change, Ewasyshyn says, and the next essential step is engaging the labor force, encouraging employees to rotate jobs and take ownership of their work.

This new attitude, and increased automation, has invigorated Chrysler’s product pipeline, which pumped out 10 new products in 2006.

“It certainly helped with our long-range planning,” Ewasyshyn says.

“We’ve put more product on the street. We’ve spent less money,” he adds, claiming Chrysler has been able to produce 52% more models on less than 60% of the capital.

But none of this will come easy.

Like an aging prizefighter, there are no guarantees any one of the Big Three ultimately will be able to muster the speed, muscle and fortitude for one more shot at the title.

Lutz may be speaking for all when he says GM can never stop searching for efficiencies and adopting best practices worldwide. Even after restructuring is complete, he doubts GM will reach a cost or profit parity with Toyota, Honda and Nissan.

Studies show a boxer who trains vigorously to reach his ideal fighting weight usually doesn’t perform any better in the ring.

But for any chance at success, the U.S. Big Three have to believe they’ll prove the exception to that rule.

– with Scott Anderson, Eric Mayne, Tom Murphy, Byron Pope and Herb Shuldiner

apriddle@wardsauto.com