Commentary: Detroit Is Wrecking Its SUV Edge

By David Welch and Kathleen Kerwin

Just this past January, General Motors Corp. (GM ) CEO G. Richard Wagoner Jr. took center stage at the Detroit auto show to crow about a dozen new GM hybrid-electric vehicles that would significantly improve fuel economy. By decade's end, he promised, hybrid engines could power as many as one million GM vehicles, including some of its most-popular--and gas-guzzling--sport-utility vehicles. GM, he made resoundingly clear, would not be left behind in the race with Japanese auto makers for more fuel-efficient cars. Proclaimed Wagoner: "We have a responsibility to provide cleaner emissions and better fuel economy."

Nice sound bite. Too bad GM, together with its domestic rivals, is already furiously backpedaling. In mid-February, GM, Ford (F ), and DaimlerChrysler (DCX ) told the National Highway Traffic & Safety Administration, which enforces fuel economy standards, that they can't meet its proposed rules to raise truck and SUV mileage. That plan, to raise combined truck fuel economy from 20.7 to 22.2 miles per gallon by 2007, is just too challenging and too costly, the Big Three argue.

Just what planet are American auto execs living on? If ever there was a smart time to get foursquare behind the push for fuel economy, it's now. And given current technology--never mind stuff that's still on the drawing board--increasing fuel efficiency by less than a mile and a half per gallon in four years should be a minimum goal, not a stretch. With war looming in Iraq and oil prices soaring, U.S. auto makers ought to be pushing as hard as possible for advances in fuel economy. Yet in what could prove to be a big public-relations and marketing blunder, they are digging in their heels.

But the potential consequences of auto makers' stubbornness go far beyond PR. If the industry fails to cultivate fuel efficiency, as it has so often in the past, its ability to compete head-on with foreign auto makers in the lucrative SUV market is at stake. And that, of course, has huge implications for Big Three manufacturing jobs.

U.S. auto makers have shown a lack of vision over the years. Since the 1970s, Detroit has consistently insisted that meeting tougher mileage rules would be impossible. Meanwhile, the Japanese hit and exceeded the new targets with vehicles U.S. buyers happily snapped up. "The Big Three always say they can't do anything," gripes auto analyst Maryann Keller, a member of the National Academy of Sciences committee that last year suggested raising fuel standards.

Now it looks as if Detroit is falling behind in another promising market. This time around, Honda Motor Co. (HMC ) and Toyota Motor Corp. (TM ) are racing new hybrid cars to market, with hybrid SUVs right behind. These gas-electric pioneers are already offering huge mileage improvements. But Ford Motor Co.'s (F ) and GM's first hybrids won't go on sale until mid-2004 at the earliest.

U.S. auto makers insist on sticking with what has already worked so well. Why mess with success, the thinking goes. SUVs and pickups account for 90% of profits, with the biggest gas guzzlers bringing in the most money. Indeed, even as it fights improved standards, Detroit continues to introduce huge new gas hogs like the Hummer H2.

True, Toyota and Nissan Motor Corp. (NSANY ) are also heavily vested in the big pickup and SUV business with new models and billion-dollar factory investments. But the Japanese are moving faster to develop more fuel-efficient trucks, even as U.S. carmakers insist on sticking with the early 21st century version of 1970s muscle cars. With consumer tastes starting to shift, they risk ending up on the wrong side of that bet. Last year, sales of big SUVs leveled off, falling at the same 2% clip as overall auto sales. The growth is in the more fuel-thrifty, car-based SUV segment Honda and Toyota invented, where Detroit is late. Sales of such "crossover" SUVs shot up 23% last year.

Detroit lost dominance in the car market by sticking its head in the sand while imports offered better mileage and higher quality. The last thing it can afford is to let the same thing happen in its cash-cow SUV business.

Welch and Kerwin cover the auto industry from Detroit.

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