Running Out Of Road


How the Big Three

Lost Their Grip

on the American Car Market

By Micheline Maynard

Currency/Doubleday -- 327pp -- $24.95

Detroit once produced 9 of every 10 cars in America, but by 2010 most new cars and trucks hitting U.S. roads could be foreign brands. If so, Toyota Motor Corp. (TM ) may well have passed General Motors Corp. (GM ) to become the world's largest carmaker by that date. And if Micheline Maynard's predictions hold true, one of the Big Three -- GM, Ford (F ), or the Chrysler unit of DaimlerChrysler (DCX ) -- won't exist in its current form. It's a troubling vision that ought to set off alarm bells in Motown boardrooms, but Maynard says it probably won't. In her comprehensive The End of Detroit: How the Big Three Lost Their Grip on the American Car Market, the New York Times reporter suggests that the Big Three's well-intentioned execs are stymied by a dysfunctional culture. Their hubris, born in a period when the U.S. dominated the auto world and sustained by nostalgia, has devolved into a chronic case of denial. "The great tragedy of Detroit's decade-long demise is that it's self-inflicted," she writes.

The author doesn't drop any bombshells in The End of Detroit. Instead, she builds a persuasive case with layers of detail -- a methodical recounting of the imports' successes and Detroit's repeated fumbles over the past 30 years. The book shows how, as the newcomers tried, failed, learned, and evolved into brands that no longer seem foreign, U.S. carmakers just didn't maintain their advantage. The volume's main weaknesses are an overload of minutiae and some less-than-graceful writing.

Maynard's account of Detroit's demise starts in the 1970s, with the rise of compacts from Japan and Europe. Produced by manufacturers that Detroit had in some cases taught to build cars, these fuel-efficient runabouts caught the Big Three by surprise, just as the oil crisis did. The trend gathered force in the 1980s as imports began to dominate the sedan market, and deepened in the 1990s, with the imports' gaining sales of minivans and luxury cars.

The tale of the Ford Taurus encapsulates Detroit's lessons unlearned. In 1985, the company wowed the auto world with a sedan that, by 1992, outsold the Honda Accord and Toyota Camry -- both relatively new but already formidable. For a few years, Taurus' star continued to rise. Yet, in the mid-1990s, rather than match Japan's incremental upgrades of its sedans, Ford shifted its attention to more profitable trucks and SUVs. Making matters worse, Ford tried to keep sales strong by pushing discounted Tauruses onto rental lots and by offering consumers low-cost loans on the model. These moves crushed Taurus' resale value, alienating once-loyal customers. This year, Ford announced plans to kill off the model by 2005. As one astonished analyst told Maynard: "Not many car companies...have literally abandoned a best-seller."

Meanwhile, foreign carmakers were traveling a very different path. They invested huge resources in understanding U.S. customers' tastes and building cars to please them, all the while improving quality. This has encouraged even once-loyal "Buy American" drivers to defect, and the trend may not be reversible. Maynard unreels example after example of competitive foreign players -- Germany's BMW, South Korea's Hyundai, and Japan's Honda (HMC ), Toyota, and Nissan (NSANY ) -- entering, floundering in, and finally conquering niches in the U.S. market.

One big reason the imports have won the hearts and wallets of Americans is, as the author says, "because foreign cars aren't really foreign anymore." After spending billions on research and development, beginning in the early 1980s the companies built 17 plants -- many of them in the South -- that now employ 85,000 mostly nonunion workers.

As their ability to appeal to patriotism withered, the Big Three increased their reliance on financial incentives to sell cars. Yet while keeping volumes high, this strategy is likely to lead to an ugly pileup, without really holding imports at bay. In recent years, foreign brands have continued to gain share overall, despite Detroit's deep discounts. Meanwhile, the rebates are starving the Big Three of profits.

There's no easy way to reverse this trend. The imports are riding a virtuous cycle that means they're almost sure to keep taking market share. The SUV and full-size pickup markets -- which spawn most of Detroit's profits -- are growing crowded with high-quality imports. Soon, this U.S. stronghold may go the way of sedans and minivans.

As for hybrids and fuel-cell cars, that's not Detroit's market to lose. While the Big Three argue over the timing and marketability of hybrids, Toyota and Honda are readying the third generation of these electric-gas cars and applying what they've learned to prototype fuel-cell vehicles. As Maynard sees it, Detroit's future could become a reverse image of its past: An underdeveloped U.S. auto industry will have no choice but to learn the tricks of the trade from foreign-owned, technologically superior competitors.

By Adam Aston

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