After all the bad news coming out of Detroit this year, you'd be forgiven for thinking we're witnessing the beginning of the American automotive industry's demise.
General Motors lost $1.1 billion in the first quarter, and while Ford reported earnings of $1.3 billion for that period, it expects second-quarter numbers to fall into the red. As a result, Wall Street downgraded the credit ratings for Ford and GM to “junk” status.
Sales are also off. Through April, GM sales fell 4.2% compared to 2004, while Ford's dropped 1.6%. GM truck sales took an especially big hit, falling 14.1%. In contrast, other automakers generally did very well. DaimlerChrysler's sales were up 8.7%, Toyota was up 25.9%, Honda rose 18.6%, and Nissan increased 31.9%.
That's a long list of bad news. But don't start writing the eulogy for GM and Ford just yet. Lost in all the hand wringing has been news that both are making huge strides in quality. In addition, a bevy of long-awaited hybrid pickups and SUVs, as well as other fuel-sipping technology, is starting to wind its way to market from Ford and GM. This could bring powerful benefits to light truck fleets, providing fuel economy, power, performance and hauling capacity all in one package.
“Needless to say, 2005 has been and continues to be a challenge,” Bob Lutz, GM's vice chairman of product development, told me at a recent press event held to showcase the OEM's 2006 lineup. “We're facing tough global competition and escalating health care costs, which puts us at a huge competitive disadvantage. But… We're increasing capital expenditures this year from $7 billion to $8 billion, with the vast majority of that increase devoted to product development.”
Product details are embargoed until August 1, but I can tell you that after several days of hands-on inspection and test-drives, I can see why Lutz is optimistic. GM's cars and trucks are going to look better in 2006 than anyone would have thought possible even five years ago, with quality interiors, functionality, ride, handling and performance to match.
“I'm not a designer — what I do is coach designers,” Lutz told me. “What it's all about now is nuance. No more cheap plastics for interiors, for example. You can't choose between low cost or high quality anymore; you must be both. You have to be best in class for everything — the chassis, frame, suspension, engines, and interior — yet still be priced for value.”
Manufacturers are also focusing on better fuel economy. Ford is working on a 4WD diesel-hybrid version of its Excursion SUV. According to Ford, the diesel hybrid version improves fuel economy by 85%, yet costs only about $1,000 more. Ford also has a diesel-hybrid F-550 chassis in field tests that is said to improve fuel economy 20% to 30% overall, and 60% to 70% in city driving.
GM already has a full-sized hybrid pickup on the market — getting an EPA-rated 18 mpg in city driving — with similar technology on the horizon for large SUVs in '06 and '07. Although Honda and Toyota have been at the forefront of hybrid car designs, they haven't transferred that technology to the light-truck side of their business. I think that will give domestic manufacturers a big advantage.
“Having a great big SUV with great fuel economy is a no-brainer,” Lutz explained to me. “At highway speed, a hybrid doesn't help much in terms of fuel economy, but in urban driving it's a big advantage. It really gives us options when it comes to addressing the fuel economy of large vehicles.”
So while many may be ready to write off American automotive prowess, I say “not so fast.” It's just possible that while no one was looking, they've stopped the downward spiral and are on their way back up.