U.S. automakers look to build on victories in the new year

Posted on December 29, 2011

Ford is hoping history can repeat itself with the upcoming launch of the next-generation Fusion four-door.

It’s been more than a quarter century since the maker revolutionized automotive design with the original Taurus sedan. Its windswept styling helped Ford dominate the huge midsize market segment, and led most competitors to migrate to more aerodynamic designs. The new Fusion, which makes its debut at the Detroit Auto Show next month, will borrow many of the visual cues of the recent Ford Evos concept car and, if early reviews are any indication, could help the maker topple the imports that have dominated the midsize segment over the last two decades.

Ford isn’t alone seeing opportunity in one of the largest and most important segments of the U.S. market. Chevrolet is gunning to gain sales and market share with the new 2013 Malibu, while Chrysler will use the Detroit Auto Show to reveal the new Dart, the first major new product developed as part of the U.S. maker’s alliance with Italy’s Fiat SpA.

“We see the Americans coming out with a lot of product that’s not only new but very attention-grabbing,” says Aaron Bragman, a Detroit-based automotive analyst with IHS.

And it’s not just in the midsize segment, he adds. Detroit’s automakers are filling showrooms with an assortment of products that are decidedly more attractive and competitive than the market has seen in years, from the newly-updated Ford Escape crossover to Cadillac’s premium-luxury XTS and entry-luxury ATS sedans.

“It’s a lot of stuff that’s going to make it a lot more difficult for the Japanese to regain market share,” added Bragman.

That’s good news for the so-called Big Three, but a serious headache for Japan’s top-tier manufacturers. Toyota and Honda, in particular, are desperately counting on 2012 to bring a turnaround after several years of unexpected struggles. The outgoing year, in particular, saw them hammered by the March 11 earthquake and tsunami that all but shut down the Japanese auto industry, the two collectively falling about 1 million units short of original production 2011 production plans.

With dealers struggling for inventory sales were down sharply, Honda expected to end the year with a 1.5 point decline in market share, Toyota’s share plunging as much as 2.5 points. The Detroit makers, on the other hand, will end the year with roughly 47 percent of the market, a gain of about 2 percentage points. It will be the first year since 1998, in fact, that all of the Big Three will have posted gains.

The question, cautions analyst Bragman, “is whether they can keep that momentum going?”

The Japanese aren’t intending to make it easy. They’re ramping up production as rapidly as possible. And they’re rolling out plenty of new product of their own — but getting decidedly more mixed reviews than they might have anticipated in the past. The critical Honda Civic, for example, was panned by Consumer Reports magazine. The automaker now rushing an update to market as quickly as possible.

“Some of the sales results (for recent new models) have been quite a disappointment,” acknowledges Tetsuo Iwamura, CEO of American Honda.

Honda isn’t alone. The new Toyota Camry has generated a largely ho-hum response despite the most expensive ad campaign in the Japanese brand’s history.

Significantly, the two Asian automakers are now spending more money than ever on rebates, low-interest loans and other incentives — a distinct shift in direction for companies that used to lambast their Detroit competitors for having to give away their products.

Detroit makers are still putting plenty of “cash on the hood,” but they’ve steadily cut back on the givebacks this past year as offerings like the compact Chevrolet Cruze and Ford Focus have clicked with consumers.

Even if the incentive wars heat up again, the domestic makers are in a better position to keep up with the competition thanks to recent contracts signed with the United Auto Workers Union. The typical UAW worker now makes a bit over $50 an hour in wages and benefits, down from more than $75 in 2007. Add other concessions and the savings amount to several thousand dollars a vehicle. That’s a critical reason why Detroit’s collective profits for 2011 will likely top $10 billion after decades of devastating losses and the 2009 bankruptcies of General Motors and Chrysler.

On the other hand, Japanese makers have suffered from plunging earnings that are expected to remain in the doldrums for at least the near to mid-term. Complicating matters, the strong yen is not only slashing earnings but forcing companies like Honda and Toyota to shift production off the home islands.

While Detroit may be getting a bit of a reprieve from the relentless onslaught of the Japanese the Big Three can’t rest on 2011 results. Korean carmakers Hyundai and Kia have gained even more share at the expense of the Japanese and are showing a willingness to spend whatever it takes to become dominant global players.

And then there’s Volkswagen, which has shown a newfound strength in the U.S. It may end 2011 as the globe’s largest automaker, toppling troubled Toyota.

Indeed, Detroit can no longer afford to focus on just the American market. With China now a larger national market than the U.S., it is readily apparent that no single market can make or break — or be allowed to make or break — a manufacturer. That’s readily apparent when one considers that nearly two-thirds of GM sales now come from outside the States.

But the turnaround at home will nonetheless help, especially as the U.S. remains the world’s most profitable automotive market. So, if the Detroit makers can maintain the outgoing year’s momentum in 2012 they should be positioned for the comeback they have so long and so desperately sought.

Paul A. Eisenstein, MSNBC