The Wall Street Journal-20080114-Car-Show Dilemma- Future Isn-t Now- Auto Makers- Trapped in a Thirsty Present- Await More Fuel-Efficient Models
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Car-Show Dilemma: Future Isn't Now; Auto Makers, Trapped in a Thirsty Present, Await More Fuel-Efficient Models
Detroit -- The two vehicles Ford Motor Co. is putting its promotional horsepower behind at the sprawling auto show here this week succinctly capture the bind that many auto makers find themselves in this year.
One is a fuel-sipping little car called, for now, the Verve. It won't go on sale in the U.S. for at least another two years. Until then, Ford's hopes for halting its sales slump and stemming massive financial losses ride on the other headliner -- the redesigned F-150 pickup truck. It's hardly a miser on fuel, but it'll be in showrooms this fall.
With gasoline surging above $3 a gallon, auto makers of all stripes will use the North American International Auto Show to trumpet plenty of great innovations they're working on to improve fuel economy, although few are ready for prime time now.
Chrysler LLC will unveil three electric-car concepts that are years away from reality. General Motors Corp. will again tout the electric Volt it hopes to build -- by 2010, the auto maker promises. Honda Motor Co. has a hydrogen fuel-cell car and Toyota Motor Corp. plans to present a small, aerodynamic truck prototype.
But the reality is most of the vehicles at the show that will actually hit U.S. roads this year are gas hogs. Like Ford, Chrysler's main new model is a big pickup truck, the redesigned Dodge Ram. GM will show a super-powerful Corvette and a 550-horsepower Cadillac CTS. Nissan Motor Co. has a thirsty sports car of its own, the 480- horsepower Skyline GTR, and Toyota will sell its new Highlander sport- utility vehicle.
The dichotomy points to the long development times that are one of the biggest challenges the auto industry faces. It takes two to three years to produce new models, a time in which market conditions can change dramatically.
The plans for vehicles like Ford's truck and Nissan's sports car for sale this year were drawn up when home values were still on the rise and $100-a-barrel oil was all but unimaginable. The new landscape is especially burdensome for Detroit's Big Three auto makers, which rely more on large trucks for profits.
"While the future of these companies will be greatly dependent on new technology development, today's reality is that they must sell as many of these big trucks as possible to fill their plants and drive cash flow," says John Casesa, a former Wall Street analyst who now heads his own advisory firm. "They have no choice."
For Ford Chief Executive Alan Mulally, this week's auto show gives him a chance to drive home the themes he has sounded as he tries to return Ford to profitability by 2009. The Verve represents what Mr. Mulally wants Ford to become: a company that builds world-class, fuel- efficient cars the same way from the same parts all around the globe, realizing huge economies of scale.
When Mr. Mulally arrived at Ford a year-and-a-half ago, he inherited a company that built different cars with different parts and designs depending on the market. Take the Focus compact car. The European version is a sporty model with solid sales. The U.S. Focus is based on an older design made from different parts, and hasn't sold particularly well.
Mr. Mulally, a former Boeing Co. executive, said he couldn't believe the company was operating this way. "Can you imagine having one 737 for Europe and one 737 for the United States?"
He decided the company needed to be "one Ford," emphasizing opportunities for scale above getting vehicles to market quickly. The Verve was the first opportunity to put the idea into practice. Designers in England and Germany developed the car's underpinnings, with plans to build the car for Europe and Asia. Then executives at Ford headquarters in Dearborn, Mich., decided the car could also fill a need in North America.
The Verve, which company insiders say may be called the Fiesta when it comes to the U.S. in early 2010, will go on sale in Europe and Asia later this year. It boasts a flashy interior -- including a center console that arranges the navigation screen and lighted control buttons in a design resembling a cellphone. Like many other new Ford vehicles, it will likely feature the voice-activated Sync system, developed by Microsoft Corp., that allows drivers to play music and talk on the phone hands-free.
The car's exterior evokes sporty designs usually seen from Mazda Motor Corp. or BMW AG, as opposed to the staid look of many past Fords. Ford hopes the car will appeal to people under the age of 28, the so-called millennials, a group that includes many first-time new- car buyers. Some 11,000 of them reach driving age each day. Ford says they have a green streak and flock to small cars.
Putting as much effort as it is into a car likely to sell for less than $20,000 is a big change for a company that for years all but ignored small cars and focused primarily on making trucks and SUVs. Toyota and Honda already have steady sellers among small cars in the U.S., raising the question of whether Ford's subcompact will be too late. "In North America, we've given short shrift to this end of the market," says George Pipas, Ford's top sales analyst. "It's a valid concern."
Meanwhile, Ford has few new vehicles coming to market this year besides the new F-150 truck -- the auto maker will introduce a new small sport-utility called Flex and a new Lincoln sedan this year, but in far lower volumes than the pickup.
Ford's new pickup reaps high margins and remains America's best- selling vehicle, but it faces problems of its own. While it promises to be among the best in its class, the slowdown in residential construction, high fuel prices and new fuel-economy regulations will keep pressure on the ultra-competitive full-size pickup segment this year.
Ford will emphasize the improved fuel-economy of its truck, achieved through weight reduction and better aerodynamics. But the F-150's mileage will still fall well below the 30-plus-miles-per-gallon threshold consumers and government regulations are gravitating toward. Ford has sold more than 800,000 F-150s annually for most of the decade, but last year sold fewer than 700,000.
That's bad news for a company that continues to lose money in its core market. Its stock recently fell to its lowest share price in more than two decades; it closed at $6.06 Friday. Worse, 2008 is forecast to be the worst for U.S. auto sales since 1998. Ford's U.S. market share has plunged below 15% from more than 25% a decade ago. The company lost $12.6 billion in 2006 and is on track to lose money again in 2007, though the losses are expected to be narrower.
"We're not going to say that we don't mind not having more small cars," Mr. Mulally says. Of the Verve, he adds: "Would we like to have it sooner? You bet. Do we care more about getting it right? You bet."
