US carmakers try flashier approach
Nostalgia lovers and macho-car aficionados heading to Detroit this week won't be disappointed. They'll be able to check out Ford's re-creation of the '60s-era Mustang, the muscular Chevrolet Corvette, and the Chrysler ME4-12 "super car," a radical flying wedge that seats two, sports 850 horsepower, and goes 248 miles per hour.
Flash and dash are a big theme from domestic automakers at this year's North American International Auto Show, which opened to the public Saturday.
Over all that shiny metal, however, a deep shadow is spreading. With more and more imports plying the streets, the United States looks increasingly unable to absorb the output of the world's two largest carmakers, plus the fifth biggest, DaimlerChrysler. So, not too far down the road, the Big Three may become the Big Two. Such consolidation would have huge consequences for the nation's manufacturing sector, employment outlook, and labor movement.
"Ten years from now, the Big Three, for lack of a better term, will not be able to exist in the same way they do now," says Wes Brown, a partner in Iceology, an automotive consulting company in Los Angeles. At the very least, that will mean fewer brands, fewer manufacturing plants, fewer dealers, and fewer workers, he says.
In the face of fierce competition, US automakers are turning to flashy "halo" cars - niche models that draw looks if not huge sales - in a bid to lure customers back into showrooms. The best example at this year's show was the Chrysler ME4-12, designed to outmuscle Lamborghini and Ferrari.
It's an inherently risky strategy, analysts say.
"In some cases ... such wild show cars are an act of desperation," says Art Spinella, president of CNW Marketing Research, an automotive consultancy in Bandon, Ore.
Of course, concerns about the viability of the Big Three date back to the energy crises of the 1970s, when efficient Japanese models began chewing away Detroit's market share. In the '80s, Chrysler teetered in the wake of the import surge until an internal turnaround, and then a buyout in 1998 by Germany's Daimler-Benz, bolstered its position. Also in the 1990s, General Motors looked lost and listless as competitors closed in on its lead in overall world sales.
GM, however, gained more than one-quarter point in market share last year. The improvement was led largely by a resurgent Cadillac and by new 2004 models at Chevrolet, Pontiac, and Saturn - all influenced by vice chairman of product development, Robert Lutz.
Now, Ford looks vulnerable. The company has lost half a percentage point of market share in the past year despite huge incentives that it can't afford to maintain, Mr. Spinella says. The crucial Ford 500 sedan - the replacement for the perennial Taurus - doesn't look to be the mainstream hit the company was hoping for.
"Too big, too expensive, and nothing to write home about," concludes Sam Fiorani, an analyst with Automotive Compass.com in West Chester, Pa.
"The 500 couldn't be more bland and any less memorable," writes Peter deLorenzo on autoextremist.com, his website. "We're talking instant rent-a-car here." It competes well with five-year-old Audis, he adds.
Chrysler, too, faces questions. Its new bread-and- butter sedans don't look mainstream at all. The Dodge Magnum wagon and Chrysler 300 are high-performance sedans with big V-8 engines and rear-wheel drive, like American cars of the '70s.
"My biggest question is: 'Who are these cars designed for?' " asks Micheline Maynard, author of a recent book on the industry, "The End of Detroit." What Americans are buying is hundreds of thousands of reliable and comparatively bland Honda Accords and Toyota Camrys, the antithesis of the new Chryslers, she argues. "Are these cars designed to fill a demonstrated customer need, or are executives just inventing niches to build more cars?"
Detroit is in a bind, analysts say, trying to please customers but really aiming to placate Wall Street, which punishes automakers for every quarter-point slide in market share. So, finding enough sales to stay on top can mean filling every imaginable niche to build incremental volume.
The math, according to Spinella, goes something like this: In 2003, the entire auto industry had to sell 16.5 million cars in the US to break even. Of the 16.7 million it actually sold, 200,000 were small-volume niche models. In the end, those niches represent automakers' profit. No wonder they're creating so many of them.
And Ford and Chrysler aren't the only automakers struggling. "Toyota is the most vulnerable it has ever been," says Spinella. The company lost as much market share as Ford, he says, and Honda dropped as well.
The big winners are Nissan - its popular Maxima sedan, Quest minivan, and Murano SUV are stealing sales from Honda and Toyota - and resurgent Korean automakers. Such competition makes every fraction of market share count, leaving no room for any of the players to shrink, analysts say. Even historical niche players such as Porsche and Mercedes-Benz are expanding their lineups to include SUVs and "lifestyle" wagons to pump up sales.
Then again, the halo-car strategy may work. In the past, such cars have generated interest in a brand, and have proven successful in driving customers to dealer showrooms, Spinella points out. Even today, Cadillac's renewed success is putting other GM brands back on buyers' shopping lists, he says.
