The End of Detroit (36 page)

Actually, what counts more is whether customers across the United States are ready to embrace something other than the big engines that Lutz thinks they will always want. The shift to hybrids has been fairly slow in the United States, where about 50,000 have been sold in the first few years they’ve been available. But those who’ve purchased them are enthusiastic about their potential. “It’s always great to go 500 miles on less than $20 in gas,” said Jim Alden, a Hollywood computer network engineer. He is on his second Prius, having bought his first in 2001 and his second in 2003. In California, Alden was paying $2 a gallon and up for gasoline for his frequent business trips. But he wasn’t just interested in saving money. “I was motivated by the technology, and it’s so good for the environment,” Alden said. The hybrid market is set to shift into a new phase in 2005, when the Lexus RX 330 arrives. Officials at Toyota are excited about it, as is Stempel, who thinks that it will trigger interest in hybrids in an entirely new group of buyers. “What’s important about the Lexus is that it’s so damn quiet,” Stempel said.

That’s just what some people in the industry think is a drawback about hybrid vehicles. They lack the zoom-zoom quality of internal combustion engines. And that’s disconcerting to people who grew up with the sound of roaring V-8s and turbochargers. The silence can take the joy out of driving. But Stempel said hybrids can be tuned to have the performance of traditional engines, just as Lexus is promising it will do with the RX 330. “Do I like the boy-racer feel? Sure,” Stempel said. “But this will set a new standard for comfort.” Whether hybrids will exist on their own as the country’s favorite form of alternative power, or lead to hydrogen fuel cell vehicles, isn’t certain. Hybrids’ biggest advantage is that they don’t require anything special. They needn’t be plugged in like electric cars, and they can run on gasoline.

But there are vast uncertainties. It’s not clear yet how hybrids will hold up under rugged driving conditions, whether repairs will be expensive, how they’ll do on the used-car market and whether interest in them will stay strong should gasoline prices plummet back toward $1 a gallon. One of the biggest skeptics about them is Chrysler, which had a hybrid Dodge Durango under development and ready to be introduced in 2002, only to pull it back because its parent company, DaimlerChrysler, insisted that diesel-fueled vehicles were a better way to go. Diesels are common in Europe, where 25 percent of all vehicles are sold with diesel engines, and it is logical that DaimlerChrysler wanted to focus its efforts in an area where it could yield more sales. However, the fight to convince consumers to try diesels will be a difficult one in the United States, where consumers remember diesels as dirty, chugging and noisy, with engines that knocked and performed poorly, except in the case of turbocharged engines.

Hybrids are another story, gliding softly along American roads like swans on a still pond. They are more than just cars—they are a statement about society, said James Lentz, Toyota’s vice president for marketing. “Toyota feels they are a way to give back,” he said, a statement that some in Detroit feel is hypocritical, in view of the fact that Toyota has expanded so deeply into the market for pickups, SUVs and minivans. But Lentz isn’t completely starry-eyed. He said Toyota believes that as with other vehicles, future buyers of hybrids will gravitate to companies with experience in the technology when they decide it’s time to buy their first gasoline-electric car. “We’ll have a huge competitive advantage when we get to generation four and five,” Lentz said.

All of which makes Stempel even sadder that his old company missed out on its chance to lead in yet another market that import companies captured first. “In the face of fluctuating gasoline prices, the situation in Iraq and an uncertain economy, consumers are saying, ‘Isn’t there a better way?’” Stempel said. Whoever hears those voices first, throughout the car market, will have the upper hand. And when it comes to the youth market and the potential for alternative-fuel vehicles, imports’ sense of hearing seems to have been more acute than that of Detroit.

EPILOGUE

THE WORLD IN 2010

TOKYO, JAN. 1, 2011
—
Confirming what the global auto industry had come to consider as inevitable, Japan’s Toyota Motor Co. said today that industry statistics for 2010 would show it had become the world’s largest automobile company, breaking an 88-year hold on the title by the General Motors Corporation.

The historic acknowledgment came in a New Year’s address to Toyota employees by Akio Toyoda, who became the company’s chief executive last year. Mr. Toyoda, a descendant of the company’s founder, Kiichiro Toyoda, spoke with employees around the world via a satellite hookup. Even while noting that company’s achievement, Mr. Toyoda, 53, cautioned company employees not to become complacent. “We take this position with humility and with the knowledge that our customers can change their minds at any moment,” said Mr. Toyoda, who last year became the first member of the Toyoda family to run the company in nearly 20 years.

Mr. Toyoda made special mention of the auto company’s operations in the United States, by far its largest market, which now include 10 assembly plants and a series of engine and parts plants that employ more than 100,000 hourly workers. Mr. Toyoda noted that Toyota’s sales of pickup trucks in 2010 had topped 500,000 for the first time, and that it sold a total of nearly 2.5 million vehicles in the United States in 2010, solidifying its hold on third place there.

He also mentioned that Toyota’s sales of hybrid-electric and other alternative-fuel vehicles had exceeded 1 million worldwide in 2010, including over 600,000 sold in the United States last year.

Toyota’s sales in 2010 are expected to give foreign auto companies nearly 50% of the American car market, their greatest proportion in industry history, according to an estimate from Nextrend Inc., the Los Angeles automotive consulting firm. In Detroit, G.M. was closed for the New Year’s holiday, and officials could not be reached for comment.

Whether Toyota actually passes GM by 2010 to become the world’s largest company, or simply remains the same size it is now, seems to be moot. There is already a grudging consensus in Detroit that it is the world’s leading automobile company, not merely the world’s best when it comes to manufacturing. Bob Lutz may turn up his nose at Camry’s looks, and others may declare Lexus cars to be anonymous. But a simple fact remains: Many Americans consider Toyota’s vehicles to be superior to the Detroit automobiles that they once admired and that will live on as icons of American design. Even more, Americans have come to embrace vehicles built by foreign manufacturers as substitutes for those made by GM, Ford and Chrysler. And the longer they own them, the more difficult Detroit’s task becomes. Customers, as
Advertising Age
columnist Bob Garfield said, simply aren’t listening when Detroit argues that its quality has improved, promises that what’s coming next will be even better or tries to guilt customers back into the fold by evoking patriotism and nostalgia.

That isn’t to say that America is losing its automobile industry. Far from it. With every gain made by the imports, Americans are enjoying the fruits of a new automobile industry in which American workers build fine cars and trucks in American factories. No, the owners of those plants aren’t based in Detroit. But the outlook for the automobile industry is bright. There will be more new plants opened in the United States by 2010, more new choices and more jobs introduced into the car market. Those vehicles won’t be sold by Detroit companies, most of those new plants won’t be built by Detroit companies and those factories won’t employ United Auto Workers members. The emergence of this parallel American automobile industry is an astounding prospect, considering how deep Detroit’s roots are sunk into the American culture. But the Detroit companies have had plenty of time to get used to the idea—since the 1980s, in fact. Stopping imports’ growth between now and 2010 may be impossible, primarily because American consumers simply won’t allow it.

“I just find that cars built by American-run factories have slumped over the past 15-plus years,” said Mike Iace of New York City, who owns a Subaru WRX and an Isuzu Trooper. “They have nice designs, but they cut corners so much that the reliability factor makes them difficult to purchase. It is fairly typical of the American mentality of ‘do as little work to get the job done as possible,’” he said. A. J. Teixeiria of Washington, D.C., turned to Subarus and Mazdas after owning more than 30 GM vehicles. He is of Brazilian descent and wanted to keep supporting the U.S. companies, but he gave up when he was repeatedly disappointed by the vehicles’ poor quality. “Americans are smart consumers and will buy the best product for their hard-earned money. Buying U.S. products out of pity helps no one,” Teixeiria said.

Ed Gjertsen II, of suburban Chicago, who owns both a Chevrolet Tahoe SUV and a Volvo S80 sedan, offers a glimmer of hope for Detroit. Gjertsen said he’d buy his Tahoe again. But he wouldn’t buy a traditional Detroit car brand. He’d either stick with Volvo (good news for Ford, which owns it) or buy a Toyota next time out. “Detroit has been behind the curve for over 30 years. There have been some great years, but sprinters do not win marathons,” Gjertsen said. He’d tell Detroit executives to work hardest on developing vehicles with consistent quality, high safety standards and, most important, good value. “This is what Detroit needs to focus on. I believe if it was not for competition, Detroit would be still sitting on its laurels,” Gjertsen said.

Detroit has rallied in the past when its back was against the wall, and there are people who think that’s just what will happen during this decade. Far from conceding defeat, GM, Ford and Chrysler all say they are better than they’ve ever been. They all have new vehicles in the works over the coming years, and they vehemently argue that this next wave will finally turn the tide in their favor. They will prove, once and for all, that they can defend themselves from the imports’ relentless attack. Yet that assumes that these vehicles will be introduced into a vacuum and that the imports will simply stand still and let Detroit catch up. That isn’t going to happen. Even if the upcoming Detroit vehicles are exciting, and their quality the equal of their counterparts from outside the United States, Detroit will have to convince import owners to convert. And it will be very difficult. “Once people have driven a Toyota or a Honda for 15 years and liked it, why would they switch?” said Greg Penske, the veteran Toyota dealer. That is the only way the Detroit companies can prove that their efforts have worked. And it is the fundamental hurdle that Detroit simply fails to understand.

What owners of foreign cars have come to value most is consistency. Whether it’s Hyundai at the bottom of the market, Toyota and Honda in the middle, or BMW at the top, the companies deliver what they promise and rarely disappoint. Whether it’s a $10,000 sedan or a $60,000 SUV, these companies’ reputations for quality, durability and reliability are like an oak tree that stands straight and tall and whose roots are sunk deep into the earth. The tree may be blown by a storm, but it does not topple. Detroit companies have improved, and they are the first to congratulate themselves for doing so, but in these critical areas, they are not the equivalent of the imports. In gardening terms, they are like weeds or annual plants, grabbing at the soil with root systems that are shallow. Every time there is a recall, and every time another customer is disappointed, those roots get yanked up. Over and over again, Detroit executives say that the situation can be changed only with new products. But new products, in and of themselves, are not the solution.

In the long term, the Detroit companies have to display the same heritage for vehicle integrity that the imports have gained over two decades. That is a process that will take patience, consistency and clear direction. If the Ford Taurus and the Saturn division are any evidence, this is not a game that Detroit has yet learned to play. And in the coming years the auto industry will be affected by a series of forces that will greatly determine whether it will be able to do so.

THE MARKET

Market trends show that the future holds more growth by the import companies. Christopher Cedergren, the veteran industry analyst at Nextrend, sees a steady erosion of Detroit’s market share this decade, despite the efforts by GM, Ford and Chrysler to introduce new vehicles and gain ground. Cedergren expected Detroit’s share to fall below 60 percent in 2003. By 2010, Detroit’s share will have dropped to 52 percent, he says, and it will decline to 50 percent by 2012. Cedergren said consumers simply consider import nameplates to be the ones they want to own.

Bob Lutz counters that imports’ appeal stems from the stigma the media has placed on domestic vehicles. He believes Detroit’s problems are primarily perceptual. And Lutz takes issue with the whole concept of dividing the market up between Detroit-based companies and foreign manufacturers. He said differences are vanishing. By 2010, he says, consumers will be weighing Detroit vehicles and the import nameplates equally, and choosing those that make sense for them. But by then Lutz will be retired from GM (presuming he doesn’t stay around until he is 78) and the vehicles that he brought to market will long since have been introduced. By then the market will know whether he has managed to instill some excitement at GM—and whether the company will increase its market share—or whether GM’s market image was irreparably sullied by its relentless emphasis on incentives.

By 2010, the automotive market will have changed dramatically from the playing field in which the companies are competing now. And there is not much time to get ready, since it takes the auto industry between four and five years to develop a new vehicle. The end of the decade is only one and a half product cycles away. That causes trepidation not only in Detroit but elsewhere.

Yoshi Inaba, who was, until summer, 2003, the president of Toyota Motor Sales, the automaker’s top executive in the United States, is so concerned about what lies ahead that he has asked Toyota’s strategists to look at the market differently. Inaba has no interest in seeing whether Toyota can expand its sales by selling more rental cars or moving into segments where it doesn’t now compete, like full-sized vans. He also knows that Toyota simply can’t capture the most hard-core Detroit loyalists. All that aside, Inaba, who is returning to Japan to take charge of Toyota’s North American operations, is looking for a definition of the “relevant market”—where Toyota will see its biggest challenges in attracting buyers and its greatest opportunities to attract new business going forward. Inaba is careful about predictions that Toyota will easily smash through 2 million sales a year in the United States, on its way to 2.5 million a year by 2010. “That’s a good place to go,” Inaba says with a smile, but he adds, “It will not be as easy as the last five years or so. This phase is a little different.”

By 2010, the oldest baby boomers, on which Toyota has relied most heavily for its growth, will be 64 years old. They’ll be the youngest-thinking and youngest-acting senior citizens in the history of the country, but nearing retirement age nonetheless. Hard on their heels will be Generation X, and coming behind them, the initial crop of Generation Y buyers. Many of them will have grown up in a world where their parents and even their grandparents owned import nameplates, where the nation’s favorite car was a Toyota Camry, and where they don’t have to choose among a car, a pickup, an SUV and a minivan. They’re going to have a flood of new choices in the crossover market, the next big category on the verge of developing in the car market. Crossovers, or sport wagons, based on car platforms, will be to the market in 2010 what SUVs are to the market now. Imports got the initial advantage in this market, with vehicles like the Toyota Highlander, Lexus RX 300, Acura MDX, Honda Pilot, Nissan Murano and Infiniti FX 35, and there’s no reason to think they can’t hang on to it as they broaden their lineups. After all, if they’ve already beaten Detroit in cars; why wouldn’t they beat them in car-based SUVs as well? Simply because Detroit enters a category doesn’t mean that it has to be the dominating force, as some in the Motor City still fervently believe. But a telling factor here will be manufacturing flexibility. The companies that build multiple kinds of vehicles in their factories will have a leg up on those companies that build only one or two types of vehicles. Toyota, Honda and Nissan already have the equipment in the body shops of their American factories to allow them to build as many as eight different types of automobiles. That will let them change production on the fly, according to consumer demands. Detroit will have to prove that it can react as swiftly. GM, Ford and Chrysler already are beginning to convert their plants to this manufacturing capability; whether they can shift their mind-sets to be ready for a world where tastes change even faster remains to be seen.

An unknown for every manufacturer is the role that alternative-fuel vehicles will play. For its part, Toyota is determined to turn hybrids from curiosities into mass market vehicles. It wants to sell 600,000 hybrids a year in the United States by then, which would be the equivalent of the combined sales of the Camry, the Avalon and the Sienna in 2003. GM, not to be outdone, says it’s going to sell a million hybrids a year by then, but it has yet to introduce its first one and prove that its customers are interested in them. Before it decided that it, too, had to get into the hybrid market, GM had spent most of its time talking about hydrogen fuel cell vehicles, showing the Autonomy at the 2002 Detroit show, which is a platform onto which its fuel cell vehicles would be built.

Fancy stuff, but hydrogen fuel cell vehicles are much farther out than 2010, at least where the average customer is concerned. And, in a tactic that most likely will lead to further delays, Detroit companies want the government to foot a good part of the research bill, requiring $1 billion or more in subsidies. In the same vein, they’ve argued that there should be tax breaks, as well, for customers who purchase hybrid vehicles. Even while he talked excitedly at Ford’s shareholders’ meeting about the upcoming Ford Escape hybrid, Bill Ford, an avowed environmentalist, argued for a $3,000-per-vehicle credit to convince customers to buy it. The jockeying for government help comes despite the fact that Honda, Toyota and Nissan have already sold their first fuel cell vehicles to government fleets, and Honda and Toyota have already established a foothold in hybrids.