Desperate to increase market share against foreign competitors, Detroit automakers are finally adapting their offerings to give consumers what they want.
Published January 21, 2004
The recent 2004 North American International Auto Show in Detroit turned into an automotive version of High Noon. General Motors, Ford and DaimlerChrysler chose the city that once was synonymous with their dominance to stage a showdown after losing market share to their foreign competitors again last year. Unveiling new models with names as evocative as Solstice and Cobalt or as venerable as GTO and Malibu, the Big Three hope to win back American car buyers.
It won't be as easy as thinking up clever names, however. If it were, the stodgy-sounding Toyota Camry wouldn't be the nation's best selling car. American manufacturers have a lot to overcome - consumer debt, buyer expectations and their own slow reflexes - if they are to gain on their main Japanese and German competitors.
American companies have rediscovered the sedan, whose development they had forsaken in favor of higher-margin SUVs and pickups. While American automakers focused on gas-guzzling light trucks, they apparently forgot that traditional car models still account for nearly half of all sales. Now, GM has allocated two-thirds of its product-development budget to car models, a percentage it used to put into trucks. That investment should win back market share, GM executive Robert Lutz said, or "I will be seriously surprised and cruelly disappointed."
The highly competitive business is cruel. Just to keep up last year, American automakers had to offer an escalating array of incentives - big discounts, hefty rebates and cheap financing - that cut into profits. So, for example, GM made just $184 per car it sold in the first nine months of 2003, a third of the prior year's profit, according to the Wall Street Journal.
The tactic could backfire this year. Car buyers expect big discounts on American cars and may turn up their noses at anything close to sticker price. Also, many consumers are carrying too much debt. A Florida Ford dealer told the Journal that 70-90 percent of Ford customers owe more on their cars than they are worth, and that will make it impossible for them to consider new purchases without substantial incentives to offset the loss.
Developing new models is one way to compete, but the Big Three have been slow to respond on two other important considerations: quality and innovation. When American companies look in their rear-view mirrors, they see their biggest rival, Japan's Toyota Motor Co., growing closer as it increases its U.S. market share.
While GM, Ford and DaimlerChrysler were lobbying Congress to forget about fuel-economy gains, Toyota was developing its hybrid gas-electric Prius, which gets about 50 mpg. Perhaps prophetically, the Prius won the Car of the Year award at the Detroit car show. It is such a hit with the American public that Toyota has increased production by 30 percent, and the wait for a Prius runs to several months. "The domestic manufacturers still don't understand fuel economy and the need for it," said David Champion, director of auto testing for Consumer Reports magazine.
There are encouraging signs that the Big Three are starting to catch on, however. In addition to developing new car models and improving reliability, they have promised to add safety measures to their SUVs. And Ford announced that it will be the third manufacturer (after Toyota and Honda) to sell a hybrid model (expected this summer). If American automakers are to stop losing ground to their foreign competitors, they will need that kind of effort for years to come.
