Do you get the idea that Detroit doesn't care about cars any more? I do.
AtCorp. executives are all caught up with growing in China and catching up with trucks here in North America. They're openly questioning whether all the investment in new car designs is worth the money. It's wrong-headed, but understandable.
First, a slight majority of retail buyers may now be purchasing "trucks," meaning minivans, sport/utility vehicles (SUVs) and pickups. The figures still show an edge for cars, 55% to 45% so far this year. But if you pull out the huge fleets of rental and company-leased cars, trucks may have a lead in outright sales. Of course, the only "truck" trucks here are pickups; minivans and SUVs are just different types of cars. But if the customer wants trucks, the executives say that's where we should invest. Why spend billions on car designs? Put the money where the action is.
Second, overcapacity in cars, particularly in the great middle of the market - the midsize (likeTaurus) and nearly midsize (like Dodge Stratus) - mean many cars are sold at give-away prices. There are losses, not profits. Why invest in new designs that will only lose money when a big boy like Ford Motor Co.'s Lincoln Navigator can make $15,000 profit? Small cars are priced low to sell to meet the 27.5 miles-per-gallon (8.5L/100km) Corporate Average Fuel Economy (CAFE) law, but that means more losses. Why pump more money into a losing game?
Third, the Japanese, at leastand , are really strong in the middle of the car market. So stop banging heads. Hit 'em where they ain't, in trucks.
It seems so logical. But is it really?
Those fat profits in trucks won't last forever. The same guys who are running past Detroit in cars are catching up in trucks. In minivans it's Toyota this fall,next. Figure 150,000 to 200,000 more minivan capacity, all by the Japanese. That wouldn't wipe out 's lead, or GM or . But Honda's and Toyota's quality reputation will sell those vans, and they will come out of somebody's hide. That means price competition to keep business, and smaller minivan profits.
In big pickups,is readying a U.S.-made big V-8 pickup with 100,000 units-plus annual capacity. The Big Three will fight like tigers to protect this market. No one will be wiped out, but profits will tighten.
SUVs? They're pouring in, and with new designs that tap new markets: The Mercedes M Class, the coming Lexus RX300. They call these "crosssover" because they are half car, half SUV.
And the smaller SUVs, like the Toyota RAV4 and Honda CRV, are running against almost no Detroit competition. Ford is readying one, a car-based smaller SUV, maybe early in 1999, but where are GM and? Chrysler will sell the Dodge Durango SUV in big numbers, but the new foreign nameplate competition will get some of the business and price competition will grow. GM's also working on a small SUV, possibly an updated Chevy Tracker. Still, the Big Three won't control 85% of the truck market again.
This doesn't mean there won't be profits in trucks. It means the competition will grow and an oversupply will push prices down.
Look at the domestic car market: Foreign nameplates have a 40% share, and that's where the growth opportunity is for Detroit. It's difficult to see the Big Three going from 85% to 90% of trucks. But it's not impossible to see them running from 60% of cars back up to 65%.
That's where design comes in. They've got the dealers and the marketing ability. What Ford and GM need is to unleash their design imagination again, and rein in the almighty focus groups.
How about some of those "crossover" vehicles that provide all-wheel-drive traction and roominess without the bulk and the insatiable 13 mpg (18L/100km) thirst of today's big boys? If Mercedes and Lexus can create them, how about Detroit? And what about smaller all-wheel-drive (AWD) vehicles?
Chrysler will be building a small "high boy" car (short with a tall roof) in a couple of years. It sounds perfect for AWD. Detroit may worry about developing AWD cars that could take business from Jeeps and Explorers and Blazers, but it's still better to steal business from yourself than have others steal it from you.
Then there are the really small cars the Europeans are beginning to build: The new Mercedes A Class, the coming-Rover Mini and the aluminum-bodied Audi, cars around 140 to 145 ins. (355 to 368 cm) long. Detroit thinks the demand is created only by Europe's crowded cities and high gasoline prices. But these are $20,000 to $25,000 cars.
There's still a way to make money from passenger cars. Ford's decision to hire a design chief from the outside (see story, p.38), a man credited with creating VW's New Beetle, may be a sign that the No.2 automaker is looking for more imagination.
Last, going global is absolutely necessary, but not at the price of losing the home base. It's a two-front war. We've fought those before, and won.
- Jerry Flint is a columnist and former senior editor of Forbes magazine.