American auto industry seen at a crossroads

Roland Jones Associate editor • Profile • E-mail

With sinking sales to job cuts by the thousands, it’s no great exaggeration to say that when historians write the history of America’s big automotive manufacturers, 2005 will go down as one of their most dreadful years.

That’s not to say the American automotive business is in dire straits — on the contrary, it’s thriving. Automobile sales are still strong, but while times are good for some manufacturers, the nation’s two biggest — General Motors and Ford — are in the midst of a massive and agonizing reorganization, hobbled by a shrinking domestic market share, plunging profits, and the high wages and generous health benefits promised to their existing and former workers.

As if that wasn’t already enough, Detroit’s supremacy is also under threat from a handful of Asian manufacturers, some already well-established, that are keen to muscle their way into the U.S. market.

“American vehicle makers are in the middle of a very hard market environment — overseas companies are attacking them with strong products and good prices, and more of them are coming onto the market each day,” said Daniel Gorrell, vice president of the automotive practice at research and consulting firm Strategic Vision.

As American automakers struggle to deal with sagging sales and tough union negotiations, MSNBC.com looks at some of the most pressing issues now facing the American automotive industry. They include stiff competition from Asian manufacturers, the inexorable rise of the fuel-efficient, gas-electric hybrid and America’s waning love affair with the sports utility vehicle, or SUV — at one time Detroit’s cash cow, but after a year or so of high gasoline prices reviled as a symbol of America’s gas-guzzling car culture.

Still, the decline of one of the nation’s largest industries can’t be blamed entirely on high gas prices and healthcare costs, Gorrell notes.

He also blames Detroit’s inability to come up with exciting products that consumers want to buy. GM, for its part, hopes to counter some of those charges and raise sales and revenue in 2006 with a new line of full-size SUVs and pickups with greater fuel-efficiency. But the introduction of the vehicles comes as consumers shift toward car-based “crossover” vehicles, or CUVs. And GM no longer enjoys an image of distinction and quality.

“There’s an image issue here,” Gorrell said. “Even though the quality of many American cars is as good, if not equal to those of the Japanese, people don’t believe that, and a lot of that has to do with public perception — it takes a long time to turn public perception around. So if they don’t produce hits, they’ll have more problems.”

Embarrassingly for GM, it’s also facing the prospect of losing its position as the world’s largest automaker to Japan’s Toyota, which said recently it intends to produce 9.06 million vehicles in 2006 — a production level that would surpass GM’s expected output. If Toyota overtakes GM, the auto giant will likely find it increasingly difficult to rebuild its position if Toyota continues to innovate and aggressively pursue the U.S. market.

“Our forecast shows GM and Toyota at about parity with GM in 2006, but Toyota takes over the lead in 2007, and they stay in front until 2017,” said Rebecca Lindland, an automotive analyst at consultancy Global Insight.

Discounts delivered, but not enough
U.S. automakers hit a home run last summer with discounts that let consumers pay the so-called “employee” price, leading to near-record sales. But as soon as the discounts expired in October, sales plummeted. The Big Three have vowed to pull back on incentives, which confuse customers, cheapen brand image and hurt resale value. But analysts say that won’t be easy as long as they churn out more cars than they can sell.

Sales of SUVs have fallen by 2 or 3 percent in each of the last few years, and a jump in gas prices late in 2005 accelerated that trend, curbing sales of the biggest SUVs.

GM is hoping to halt that slide with a new lineup of full-size SUVs coming out in 2006. GM says its 2007 Chevrolet Tahoe, Cadillac Escalade and other models get 20 miles to the gallon, making them the most fuel efficient in their class. And Ford hopes its Ford Fusion sedan, introduced this fall, will be stiff competition for the 2007 Toyota Camry, the latest version of America’s top-selling car.

But for some, changing car tastes and the potential for higher gas prices means a new breed of smaller CUVs — essentially a smaller-sized SUV that is more like a car than a truck — will grab consumers in 2006. And the market for CUVs is expected to heat up later this year when Ford launches new models like the Ford Edge.

In all, automakers will introduce 21 new and 38 significantly redesigned vehicles in 2006, according to J.D. Power and Associates. That’s similar to last year, when 22 new vehicles and 30 redesigns hit the market.

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