By Ernest Beck, MSN MoneyThe news from Detroit just gets grimmer. Sales of fuel-guzzling SUVs and trucks continue to sink, and the Big Three that once ruled the industry -- General Motors, Ford Motor and Chrysler -- are begging Washington for a multibillion-dollar bailout just to stay in business. Car company share prices are at all-time lows as the automakers cut costs, shutter plants and lay off workers.
How can US automakers survive?
But at GM's Advanced Design Center in Warren, Mich., Bob Boniface is surprisingly optimistic about the future as he shows off a clay mockup of the company's Chevy Volt, a mass-market, electrically propelled vehicle that his crew is developing. "Business as usual just doesn't work for us and our customers anymore," says Boniface, design director for the Volt. "Our natural resources are limited, so we have to stay ahead of the technological curve."
Behind the scenes: GM's Volt
Set to debut in 2010, the Volt is a bid by industry bellwether GM to restructure its lineup with advanced technology that is less dependent on fossil fuels. Along with hybrids being developed by Ford, these cars are a clear signal that U.S. automakers are starting to move away from vehicles like the gas-hogging Hummer, which captured consumers' lust for big, eye-catching vehicles and contributed mightily to the bottom line.
See Ford's new plug-in hybrid
But Detroit -- once the world's industry leader and an example of America's economic might -- has already lost much of its luster. Now the question is whether the automakers' retooling is too little, too late.
"Clearly, product and strategic planning have failed miserably," Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Mich., says about the Detroit automakers.
Noting that the Honda Civic is now the best-selling car in America and that Toyota -- itself feeling a sales slowdown on some models -- is chasing GM's leading market share, aiming to take over as No. 1, McAlinden bluntly adds, "Management flubbed it."
How U.S. automakers got into this mess
Detroit's troubles can be attributed to several factors. One is the new energy environment: The surge in gas prices seems to have taken the U.S. automakers by complete surprise. Another was a cultural resistance to change: Unlike their more nimble Japanese rivals, managers at the American auto giants have traditionally required a strong business and financial case even to consider new vehicle development. (Stronger fuel-efficiency mandates might have made such a case, but U.S. automakers also lobbied loudly, and successfully, against them.)
Finally, the U.S. giants were hobbled by a focus on the short term: While Toyota began in the 1990s to develop a car for the 21st century (it eventually became the Prius), companies like GM were happily building highly profitable trucks and monster-size SUVs and ignoring the smaller-car market. As a result, foreign carmakers were able to infiltrate the market. Today, 40% of cars "made in America" are assembled by foreign companies.
It was tough for the Big Three to quit the habit. Selling SUVs in the '80s and '90s, says George Maglione, an analyst at Global Insight who covers the North American car market, "was a license to print money -- a gravy train, and they rode it."
The automakers say they were simply bowing to customer demand. "Not too long ago, the priority in North America was about performance, and we responded to what they wanted," explains Dan Kapp, Ford's director of research and advanced engine engineering. "The notion of a full-sized Lincoln sedan without a V8 engine was a little stretched." Now Kapp's team has changed course and is working on a fuel-efficient engine called EcoBoost, which will increase fuel economy by up to 20%. "With the change in customer prioritization," Kapp continues, "we think acceptance (of more-fuel-efficient engines) is going to be there."
Bright spots here and abroad
Despite the gloom, there are some bright spots for automakers. GM's overseas sales are booming, especially in Eastern Europe and China, where the company has shown enough foresight to develop smaller cars at lower prices for those developing markets.
Some of the models, and similar ones developed by Ford, will be tweaked and sold soon in the U.S. to try to reclaim the small-car segment of the world's biggest car market. Among the additions, for example, will be big cup holders for multitasking U.S. drivers.
Meanwhile, U.S. automakers say sales of smaller, fuel-efficient cars like the Ford Focus are soaring. And Ford says it will double to 50,000 its annual production of hybrid vehicles this year.
Yet the main focus is on restructuring the U.S. product line to address some inconvenient but unavoidable truths long ignored by the carmakers: Consumers are downsizing; fuel prices are likely to remain high; the government is heading toward more stringent fuel-efficiency requirements; and fuel-efficient foreign cars, already popular, are here to stay.
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Detroit begins to see green
As a first step, GM has put its Hummer business up for sale and is considering streamlining its large product line. Ford has sold off its Jaguar and Land Rover brands to India's Tata Motors. All the U.S. companies are knuckling down and painfully trimming their operations while at the same time investing millions in development.
GM's Chevy Volt is a good example. You'll plug it in at night to recharge, like a cell phone, and get enough juice to travel about 40 miles.
A small gas engine on board will recharge the engine as you drive, increasing its capacity. Boniface, the Volt's design director, says an electric car "makes sense on all fronts" when you think about gas prices and greenhouse gas emissions.
At Ford, designers and engineers are starting with the EcoBoost engine, a small, conventional gasoline engine with turbo-charging fuel injection to increase efficiency.
Close-up: Ford's EcoBoost engine
Further down the road is a plug-in hybrid, among other experiments. At Ford's innovation center in Dearborn, an Escape plug-in hybrid is on display. It looks just like an Escape except for the electric socket on the outside. There are other green elements you can't see, however, such as seats made of recycled soda bottles and stuffed with soy-based foam.
The plug-in hybrid "will be a big step forward," boasts Nancy Gioia, director of sustainable mobility technology at Ford. It's the kind of fuel-efficient product, she adds, that customers will find "relevant, affordable and accessible."
But it's not clear that these efforts will win over buyers in time to save, or revive, the flagging U.S. auto industry. Ford's plug-in hybrid, for example, won't be on the road for another five years and is expected to cost $10,000 to $15,000 more than current hybrids. And it's not certain that GM's Chevy Volt will be enough to stem heavy losses and rejuvenate the company's fortunes. Several small startup companies as well as Japanese heavyweight Nissan are planning to introduce their own electric cars over the next few years.
The car companies, says Maglione, the Global Insight analyst, are moving in the right direction by looking at their existing products and new technologies and trying to restructure to produce fuel-efficient midsize and smaller cars at a reasonable price. "It's not something they can afford to ignore," he says. "And if they can't do that, they won't be in business for long."
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Published Aug. 15, 2008
Produced by Elizabeth Daza/Graphics by Joe Farro and Hakan Isik
