Detroit Gets A Money Lifeline But What About Cars

Written by Fred B. Williams    Tuesday, 14 July 2009

By March, it should be clear whether Detroit's automakers are making the progress necessary to warrant any additional help from Washington. It will be measurable in their success at restructuring labor contracts, renegotiating debts, and paring product lines and dealerships. But one thing about their potential rebound won't be known by then, making any auto bailout an article of faith for taxpayers. That is whether the Big Three (or the survivors among them) can make better, more appealing cars. Cost cutting is clearly necessary for short-term survival, but it is not sufficient for the long term. Ultimately, Detroit will have to produce a broader, more diverse array of vehicles that people want to buy. Currently, it makes some good full-sized trucks and SUVs. And some of its luxury and sports cars, such as the iconic Chevrolet Corvette, compare favorably. In the smaller and less expensive categories, though, the domestic automakers lag noticeably behind the foreign transplants. For example, in Consumer Reports' latest evaluations of family sedans in the $20,000 to $25,000 range, Toyota, Nissan, Honda, Kia, Hyundai and Volkswagen all have at least one car rated above the best U.S. model, the Chevy Malibu. That's a sad commentary for a country that invented the assembly line and produced what was once the ultimate in affordability, the Model T. In 1980, when Chrysler received its first bailout, it could point to a series of economy vehicles in the pipeline that it dubbed its K-cars. Within three years of the bailout, it introduced the first of its popular minivans. This time, Detroit is full of grand visions and long-term plans. But it remains to be seen how quickly these could yield popular models. General Motors pins much of its future on the Chevy Volt, a plug-in hybrid that comes close to being an all electric car, which is due in 2010. It's a great concept. At least at the outset, however, it's likely to remain a pricey niche vehicle for the environmentally conscious. Ford, meanwhile, intends to begin selling its Fiesta, a hugely popular economy car in Europe, here in America. That, too, is a good idea. Yet Ford did the same thing nearly three decades ago without establishing the Fiesta as a permanent part of the U.S. market. Detroit's focus on gas guzzling, and relatively expensive, cars left the industry particularly vulnerable to the summer run-up in oil prices and the ensuing run-down in the economy. Just as important, the financial crisis exposed the link between Detroit's high cost structure and its inability to compete on all fronts against the likes of Toyota and Honda. The Japanese automakers are hardly immune from the recession. Toyota warned Monday that it expects to post its first operating loss since it began reporting results in 1941. But if the Big Three hope to survive the brutal shakeout, they'll have step up the consistency and innovation. Ultimately, it's all about the cars.

Last Updated ( Tuesday, 14 July 2009 )