James A. Horty III is Detroit's worst nightmare. At a cocktail party this summer, a friend mentioned he had just traded in his sport-utility vehicle for a new Mercedes-Benz. As his friend boasted about the taut, sporty ride of his new car, it occurred to Horty that he had tired of his Jeep Grand Cherokee, the fourth he had owned. "It made me start thinking: `This is getting kind of stupid. My Jeep guzzles gas, and it drives like a truck,"' says Horty, 31, a Wilmington (Del.) real estate executive. "It was truly a fad, and I feel like: been there, done that."
Soon after, Horty traded his nearly new Jeep for a silver BMW 528ia. Seven years as a happy Jeep owner didn't persuade him to buy a U.S. car. "The quality and amenities of European cars are just so much nicer," he explains.
In that view, Horty is not alone. Instead of Ford Tauruses and Buick Regals, baby boomers and the generation just behind them favor reliable Japanese sedans such as the Toyota Camry and Honda Accord or upscale German cars such as the Mercedes E320. Buy a U.S. luxury car? No way, says Kevin Ireland, 45, a Wescosville (Pa.) book editor: "I think of a Cadillac or a Lincoln as a car my Uncle Charlie, who's bald, smokes cigars, and wears bad pants, would drive."
That's terrible news for Motown. Masked by soaring stock prices and record profits from minivans and sport-utility sales, Detroit has a gnawing secret: It has lost control of the U.S. passenger car market, and a crisis is looming. As the oldest of the 75 million baby boomers enter their 50s, when consumers usually spend the most on autos, a majority prefer Japanese or European cars. The Big Three's share of car sales has plummeted from 74% in 1985 to 61% now. Strip out commercial fleet sales, and that share drops to 48%. Among baby boomers, Motown accounts for just 44% of sales. "We don't do well with boomers," admits G. Richard Wagoner Jr., 44, president of North American Operations at General Motors Corp. "It's one of the business challenges we have."
Unless Detroit can do a better job of meeting that challenge, the situation will worsen. As the prewar generation that makes up the industry's most loyal customers dies off, the mix of cars on the road will slide inexorably toward imports. By 2010, that older generation--which now buys a third of all cars--will account for just 12% of sales, according to NexTrend Inc., a Thousand Oaks (Calif.) consulting firm. By then, boomers will buy half of all vehicles, followed by Generation X, which is even less inclined than boomers to buy American. Says Christopher W. Cedergren, NexTrend's managing director: "If boomers don't alter their purchasing patterns, it's going to be devastating for the Big Three."
How devastating? He predicts that Detroit's share of the U.S. car market could drop an additional five points in the next five years. Says Conrad P. Kottak, an anthropology professor at the University of Michigan who specializes in U.S. popular culture: "You could say we're seeing the rise of the new American car business, but the names are Honda, Toyota, or BMW."
LONG HAUL. Winning over boomers won't be easy. The seeds of their defection were sown a quarter-century ago, when they started buying their first cars--and when Detroit was turning out some of its worst cars ever. Formative experiences with cars that failed to start or stalled at traffic lights turned many boomers off U.S. makes forever. "We taught them that we build junk," says James C. Bulin, Ford Motor Co.'s generational studies manager. "The lessons learned in the 1970s will stay with baby boomers for the rest of their lives."
That may be one reason why the Big Three's efforts to attract import-loving car buyers have so far fallen short. Although Detroit has narrowed the quality gap between U.S. and foreign cars dramatically and has introduced stylish models far superior to past offerings, U.S. car-share has continued to decline.
Why? For one thing, quality, while vastly improved, still can't match that of the best Japanese carmakers. Some U.S. offerings, such as the Plymouth Neon subcompact and Dodge Stratus compact, simply couldn't make up in styling what they lacked in reliability. Others, such as the Oldsmobile Aurora and Cadillac Catera, can't live down their brands' old-fogy images. Consumers deemed other well-engineered cars, such as the Ford Contour, too pricey.
Motown has had a few solid boomer successes over the years. GM's strong-selling new Pontiac Grand Prix, with its distinctively American styling, has attracted a following among some boomers, for example. But too often, Detroit has been unable to sustain those successes. The original 1986 Taurus was a hit with older boomers, and by 1992 it ranked as the best-selling car in America. But many buyers found Ford's 1995 redesign too radical or the price increase too high. After two Taurus wagons, David Savinar, a 43-year-old direct-mail executive from Newtown Square, Pa., switched to Subaru when he saw the latest Taurus look. "I would go back if there was a really beautiful American car design and if its mechanics were good," he says. Even GM's Saturn, Detroit's biggest import-fighting success, has seen sales fall 9.4% this year.
Despite their car woes, U.S. auto makers take comfort in the huge profits their trucks haul in. The 41% growth in sales of minivans, sport-utes, and pickups since 1986--a market that has been almost exclusively the domain of the Big Three--has carried them to record earnings in recent years and allowed them to maintain a 72% share of total vehicle sales. For the first nine months of 1997, they've reported combined earnings of $12 billion, largely fueled by sales of trucks, where margins can run as high as $15,000 per vehicle.
That truck success should give Detroit a marketing edge for cars, but so far it hasn't worked. To sell cars these days, Detroit has been forced to slap on rebates, eroding already thin or nonexistent margins. And boomers who have been snapping up Big Three sport-utes, minivans, and pickups show little interest in U.S. cars. Says Furman Selz auto analyst Maryann N. Keller: "Buyers have not made the transition from loving their truck to loving the same brand of car."
"FIXATION ON SUVs." Take Sharon and Ed Koorbusch of Leesburg, Va. They drive a Dodge Caravan and an Acura Integra. Sharon, 31, a pharmaceutical sales rep, loves her minivan, but that hasn't changed her mind about U.S. cars. Her advice: "If you have a choice between a domestic car and a foreign car, take the foreign car."
Make no mistake, cars do still matter. Americans bought 8.5 million of them last year, vs. 6.6 million trucks. And lately, there have been signs that America's passion for trucks is cooling. Truck sales are up just 3.5% this year, compared with 8% last year. An array of forces could dent truck sales further. Concerns over global warming could lead to stricter emission rules, which would hit trucks hardest, as would an oil shock. Meanwhile, insurers are considering raising their rates on these behemoths because of the greater damage they inflict in accidents. "Trucks are hot, and profits are there," says GM Chairman John F. Smith Jr. "But those numbers can swing back and forth rather fast."
Indeed, as their kids start leaving home over the next decade, aging boomers might well find they prefer the less jolting ride of a car. Says Susan G. Jacobs, president of Jacobs & Associates in Rutherford, N.J.: "The fixation on SUVs is distracting manufacturers from the next transition of the market as baby boomers move to the next life stage."
No company has more at stake than Chrysler. The No.3 auto maker sells two trucks for every car. "I am concerned about our declining share of the passenger-car market," says Chrysler Chairman Robert J. Eaton. "It clearly puts us at risk if the market changes."
But Detroit's deeds don't always match its words. Although Chrysler has poured $2.1 billion into restyling its Dodge Intrepid and Chrysler Concorde full-size sedans to attract younger buyers, the company is considering slashing by 50% its investment in its next generation of compact cars--the Dodge Stratus, Chrysler Cirrus, and Plymouth Breeze--due by 2000, say consultants to the auto maker. Chrysler Vice-Chairman Robert A. Lutz confirms the company is looking at making "less of a bet" on its compact car line, a key segment for winning over import buyers.
Likewise, consultants say Ford may kill the Contour and Mercury Mystique, its entries in that segment, even as it adds such trucks as the Lincoln Navigator. Even GM, the most aggressively committed to cars, recently decided to introduce a Cadillac sport-utility, insiders say. "It's hard not to give people what they want," says GM's Wagoner.
BEETLEMANIA. Still, Detroit is notoriously shortsighted. In the '60s, the Big Three ignored the threat from Japan. In the '70s, they were caught without fuel-efficient cars. And in the '90s, they're pursuing the truck boom as though it will never end, cranking out ever-bigger pickups and SUVs. Egged on by Wall Street, they've been converting car factories into truck factories--which will make it difficult to retool if America's love of trucks should wane. "This is history repeating itself," warns Keller. "It's not going to last forever, but they're acting as though it will."
The industry's obsession with big trucks is also keeping it from developing car-truck hybrids that could help it retain truck-weary boomers. While foreign car companies are launching popular, car-based SUVs such as the Mercedes ML320 and Honda CR-V, Detroit has yet to introduce such a hybrid. And the station wagon, which Detroit invented but now barely offers, is enjoying a comeback thanks to stylish all-wheel-drive versions from Subaru, Audi, and Volvo.
Baby boomers' affinity for these import brands can be traced to their early years. Unlike their parents, boomers had no World War II-derived aversion to Japanese and German cars. For a rebellious generation, making the switch to a foreign car was easy. Volkswagen was the first to tap into the new zeitgeist with quirky ads starting in the '60s that played up the Beetle's small size and odd looks. Savinar recalls being swept up in Beetlemania in college. "I loved those cars because they were simple and easy to maintain," he says.
That was in stark contrast to the land yachts offered by Detroit back then. Shocked into action by the oil embargoes of 1973 and 1979, Detroit spent the decade downsizing. New government regulations mandating better gas mileage and less pollution caught the Big Three flat-footed as they hastily launched such losers as the Chevy Vega and Ford Pinto. Bruce Lavin, a 42-year-old Sacramento doctor, vividly recalls when his first car, a 1972 Ford Mustang, erupted into flames at a stoplight. Today, he drives a Mitsubishi. "I saw there was something better," he says. Such experiences played right into boomers' mistrust of Big Business. "In the '60s, boomers grew up believing the Establishment, including the U.S. car industry, was no good," says Ford's Bulin. "And in the '70s, we proved them right."
Quality wasn't the only problem. In its rush to introduce new models, Detroit broke every marketing credo in the book. The legendary GM Chairman Alfred P. Sloan Jr. tried to keep customers for life by offering "a car for every purse and purpose." But suddenly, showrooms were crammed with lookalike models that blurred the brand distinctions. A Chevrolet looked the same as a Pontiac, a Ford the same as a Mercury, a Chrysler the same as a Dodge. Even mighty Cadillac, once the industry's gold standard, slapped its nameplate on a small car called a Cimarron, which consumers quickly recognized as a Chevy Cavalier with leather. Sloan's marketing ladder was being dismantled, rung by rung.
The Japanese, meanwhile, proved to be apt students of what had made Detroit great. As their customers gained in affluence, carmakers extended their reach with family models such as the 1986 Honda Accord. In the late '80s, they introduced luxury brands, moving into a niche Cadillac once dominated. "We moved right along with them, knowing as they grew up their desires would be changing," says Richard Colliver, executive vice-president for sales at American Honda Motor Co.
For many boomers, Detroit never had a chance. Michelle Adams, 34, a law professor at Seton Hall University School of Law in Newark, N.J., believes U.S. cars lack status. Instead, she yearns for a Honda Accord with leather seats. "I don't want to be seen getting out of a Ford; a Honda is cooler," says Adams. "I want a car that looks like I've made it."
HERD MENTALITY. Another boomer priority is looking smart in front of peers. The result: "Baby boomers buy in a herd," says John Wolkonowicz, automotive consultant at Arthur D. Little & Co. in Boston. "A vehicle gets anointed as the one to buy." These days, Camry is the sedan of choice. In SUVs, it's Grand Cherokee or Explorer. Chrysler is the right minivan, and Lexus or BMW is the correct luxury car.
Once boomers have bonded with an import brand, it takes a lot to dislodge them. Stella Otto, 41, a Maple City (Mich.) gardening author, and her husband, Francis, have owned seven Toyotas. All remained trustworthy long after the odometer passed 100,000 miles. "I've gotten comfortable with my Toyotas," she says. "I'm inclined to stick with something that's proven good."
The Big Three counterattacked with breakthrough vehicles based on truck platforms. In 1983, Chrysler introduced the first minivan, brilliantly timed to capture the boomer shift to parenthood. And just when those people-haulers became a bit boring, along came Ford in 1990 with a refined SUV called the Explorer. A new boomer niche was born. SUV sales have shot up 130% since the Explorer's launch, to 2.14 million units in 1996. Now, flush from a seven-year economic upswing, boomers are shelling out upwards of $40,000 for ever bigger, more luxurious SUVs such as the Ford Expedition and Lincoln Navigator.
Sound too good to last? You bet. Even before the recent stock market jitters, the truck boom was starting to stall. Minivan sales have flattened. Sales of big pickups have dropped 5% from last year. Even sales of Jeep Grand Cherokees and Ford Explorers have sagged 6% this year. And a glut of competition is forcing manufacturers to slap rebates and lease deals on former hot sellers.
Worse, import carmakers are storming Detroit's last bastion. But instead of hulking trucks, Mercedes, Toyota, and Honda are cleaning up with smooth-riding car-based SUVs. And Toyota just launched its Sienna minivan, based on its best-selling Camry sedan. Next fall, Honda will introduce a minivan built on the same frame as its popular Accord. Warns Honda's Colliver: "We think we can do in minivans what we did in the passenger-car segment."
NEW STAGE. The Big Three, however, remain supremely confident that they will continue to dominate the truck market. U.S. car executives note that Japan stumbled in its earlier attempts to crack the truck market with miscues such as the overpriced, undersized Honda Odyssey minivan and the underpowered Toyota T100 pickup. But such self-assurance "is the traditional mistake of Detroit," says consultant Jacobs.
Motown may also be fooling itself about the staying power of the truck craze, which has more to do with image than practicality. Already, some boomers are switching to all-wheel-drive European wagons. "There's no reason to have a sport-utility vehicle as a family car, other than to make a fashion statement," says John Pohland, 32, a Minneapolis portfolio manager who traded his Jeep Grand Cherokee for an Audi A6 Quattro wagon.
Even more ominous, though, are the demographic forces that could soon work against trucks. People-haulers such as minivans are "life-stage" vehicles, useful during child-rearing years but quickly shed when no longer needed. When that happens, boomers probably won't return to the same showrooms where they bought their trucks. New consumer data from J.D. Power & Associates Inc. show that just 19% of those switching from a truck to a car stay with the same brand.
Even as its truck successes have mounted, Detroit has been waging a losing rearguard battle in cars. Chrysler made cutting-edge design its chief weapon in the fight to win younger buyers. But Consumer Reports-toting boomers have shown little willingness to put looks ahead of quality. Chrysler's Stratus compact, launched in 1994 and aimed squarely at boomers, has nearly twice as many defects as the rival Honda Accord, according to J.D. Power. Even with a $1,000 rebate, Stratus has barely captured 1% of the market. Now, Chrysler is hoping its restyled Concorde and Intrepid sedans will attract a younger crowd. But many analysts fear the cars are too aggressively styled for the conservative family-sedan market. "Cappuccino styling for a washing-machine market," as J.D. Power analyst Lincoln Merrihew puts it.
FORD'S FOLLY. Ford has flopped in its last two bids to lure boomers to its cars. It spent $6 billion developing an internationally styled "world car," launched here as the Ford Contour and Mercury Mystique in 1994. With their cramped interiors, those compacts never caught on.
Ford's biggest blunder came with the pride of its fleet: the Taurus. The original Taurus introduced in 1986 had been an automotive breakthrough that pioneered aerodynamic styling and helped Ford lure older boomers. At a time when Detroit's car fortunes were declining, the Taurus overtook the Honda Accord in 1992 to become the best-selling car in America. "When we took over the No.1 car in America, that was a huge benefit to Ford, GM, and Chrysler," recalls Ross Roberts, vice-president of the Ford Div. "People thought: `Maybe those bozos can build a car right."' But then Ford spent $2.8 billion to redesign the Taurus in 1995. The carmaker crammed new features into a radically restyled Taurus--and raised the price by $1,000. Sales slumped, and Ford has since slashed prices. Worse, the average age of Taurus buyers remains stuck at 53, and the Camry will be the top-selling car in America this year.
Now, Ford is taking on an even greater challenge: trying to ignite a youth movement at its aged Lincoln brand. While the new Lincoln Navigator sport-ute is proving a hit with boomers, Lincoln's car buyers are still solidly in the Geritol set. Lincoln hopes softer styling this year will lower the average age of the Town Car buyer--all the way from 67 to 63. Lincoln is aiming for boomers with the smaller LS sedans coming in 1999, priced around $30,000.
GM is betting on its new brand-management strategy to win over boomers to Buick, Olds, and Cadillac. In the past year, it has introduced almost a dozen new cars, half of them midsize sedans. GM figures it can please more customers with six different cars than Honda can with its one-size-fits-all Accord. Critics gripe that it's just a way to justify seven car divisions. The newest of the bunch, Olds's stylish Intrigue, is hailed by analysts as GM's best midsize and could do nicely if the division's stodgy image does not hamper sales.
That's a big if. With many of its brands favored mainly by older buyers, image is a problem at GM. Take the Catera, the first serious play for boomer business from Cadillac, where the average customer is 63. GM says sales are on target, but even a youthful ad campaign hasn't attracted boomers. The median age of Catera buyers is 56, and nearly two-thirds of them have been coming out of other GM models. "If BMW or Mercedes brought that car out, Catera would be more widely accepted now," says R.E. Cochran, a Monroeville (Pa.) Cadillac dealer. It hasn't helped that Catera ranked near the bottom of J.D. Powers' 1997 quality study. Cadillac has had to offer $1,000 rebates to boost sales. Now, Cadillac hopes its revamped flagship Seville, arriving in December and laden with the latest technology, will shave six years off the median customer age of 56 for the current Seville.
In its zeal to save older brands, GM has ignored what may be its best opportunity for winning younger buyers. When its Saturn division premiered in 1990, it captured boomers with its upstart, anti-Detroit image. But after seven years, Saturn still offers only a modestly restyled version of its original subcompact, leaving nothing for early buyers to trade up to. "If GM took all the money it put into Oldsmobile and spent it on Saturn, they could have created a Saturn minivan and sport-utility that would have sold like crazy," says Wolkonowicz. "And Saturn would probably be the No.1 American automotive division today." GM doesn't deny the gaffe. "There are a lot of calls we didn't make right. You can just add [Saturn] to the list," says GM's Wagoner. Saturn will get a compact car in two years, but a sport-utility or minivan are distant prospects, at best.
BLANK SLATE. Foreign carmakers hardly have a perfect record with boomers, either. Mercedes stumbled badly in the late '80s when its overengineered and overpriced flagship S-class sedans made Benzes seem stodgy, though it recovered with new, lower-priced C-class sedans in 1993. The Acura and Infiniti luxury lines have never approached Lexus' success, and even Lexus' original ES250 and GS300 sedans flopped.
The Big Three are hoping to do better with Generation X. Although this group is even more inclined than boomers to buy imports--59% of its car purchases are foreign makes--its attitude toward Detroit is more one of apathy than antipathy. Gen Xers grew up in their parents' imports, and many have no firsthand experience with U.S. brands. Detroit sees this as an opportunity. "In Generation X, we're finding a more open attitude to our name and our products," says John F. Smith, general manager of Cadillac Motor Car Div.
To snare these buyers, Detroit must come up with better quality and styling. Instead, Detroit lost Russell P. Marsella, 31, who recently bought an Isuzu Rodeo after becoming disgusted with quality problems and poor service on his 1993 Chevy Blazer. "A lack of comparable quality, an unwillingness to stand behind their products, and arrogant attitudes from the Big Three drove me away," he says.
Right behind the Gen Xers are the "echo boomers," now just a few years away from their first cars. They rival their parents in number, yet few marketers have begun to prepare for them. "The arrival of the baby boomers completely changed the structure of the auto industry--the competitors changed, market share changed," says Wolkonowicz. "We have another generation like that coming along."
If Detroit is to steer this generation into its cars, the industry must begin focusing on it now. That could mean nurturing new brands such as Saturn and giving up on dying brands that drag down Detroit's image. Most of all, it must make a renewed commitment to cars. "Some brave CEO in Detroit has to stand up and say, `We need a strategy to save ourselves in the car business,"' says Cedergren. If that doesn't happen, Detroit risks watching its car business follow its elderly buyers into the sunset.