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Old 02-24-2003, 21:11   #1 (permalink)
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Passenger Cars Staging Comeback?

TheCarConnection
by Paul A. Eisenstein 2/23/2003
The family four-door makes another power play as SUVs become a hot topic.

There was a time when they ruled the road, but these days, passenger cars have become something of an endangered species in the face of the so-called “light truck boom.”

These days, sport-utility vehicles, pickups and minivans account for more than half the American automotive market. And with Japanese brands like Toyota and Honda investing billions of dollars in new light truck models and the plants to build them, you might expect the trend to continue to the point that sedans, coupes, and wagons all but disappear.

Not necessarily. If anything, the Big Three U.S. automakers are making some of the biggest shifts in their investment dollars in more than a decade. They’re not about to abandon their profitable light truck lines. But they’re getting ready to reemphasize — and reinvigorate the passenger car side of their business.

Four-doors gain respect

But don’t expect them to turn out more of the same old stuff. If they’re going to click with consumers, the carmakers have come to realize that tomorrow’s passenger cars must borrow some of the most popular truck attributes, including all-wheel drive and “command seating.”

“It may not be an overstatement to say that (the Big Three) turned their back on the passenger car side” over the last decade, says David Andrea, a senior analyst with the Center for Automotive Research, in Ann Arbor, Mich.

At the time, it seemed like a sound idea to focus on light trucks. After all, sales of minivans, pickups and SUVs were growing at a record pace, surging from barely fifteen percent of the overall U.S. market in the mid-1980s to roughly 50 percent in 2002. And light trucks were generating far greater profits. Indeed, the domestic carmakers were losing money on most of their products in the hotly competitive passenger car segment, not an environment conducive to investing more of their limited resources.

But there were some unintended consequences. While Japanese marques have also been focusing more of their attention on the truck side, they’ve continued investing in passenger cars. They’ve gained overwhelming dominance in segments the domestics once controlled, such as mid-size sedans, where the aging Ford Taurus is a distant third to the Toyota Camry and Honda Accord.

Last year, the Big Three saw their share of the American market dip to a record low 61.6 percent. But parse the numbers and you get an even more telling picture. The domestics continued to control 76.2 percent of the light truck side of the business, but only 46.6 percent of passenger car sales, the first time they’ve ever dipped below the psychologically bruising 50 percent mark.

Relying on incentives

Simply to stay in the game, General Motors, Ford and Chrysler have had to steadily increase their incentives. On the passenger car side, incentive levels grew 47.3 percent in January alone, more than twice the pace of the truck side. At GM, rebates and other givebacks equaled an average $3253 last month, while at Ford, the figure was $2929, says John Casesa of Merrill Lynch.

Passenger car incentives were $2483 a vehicle at DaimlerChrysler, which has been struggling to hold down on spending on what marketing director Jim Schroer has called the “incentive doom loop.” That’s money, he says in frustration, that should be used to improve the company’s products, “so you have to spend less on incentives to get customers to buy them.”

That idea has taken hold at the number-three automaker, which among the Big Three records the highest share of its volume in the truck category. The U.S. side of the trans-Atlantic company intends to roll out an array of new passenger car models over the next several years, including a replacement for its aging LH mid-size sedans. It recently revealed the first of those new models, the Magnum sport wagon, and plans to show off another at the upcoming New York Auto Show.

General Motors will also be “shifting its resources,” devoting a larger share of its total product development dollars to passenger cars, says Vice Chairman Bob Lutz, the man in charge of those activities. It’s not that the automaker intends to de-emphasize trucks. But it needs to revitalize passenger car lines that have gotten stale, such as the Chevrolet Cavalier, which has gone more than a decade with little more than minor cosmetic upgrades.

“I don’t think there’s any reason we can’t resurrect ourselves…on the passenger car side,” says Chevrolet General Manager Kurt Ritter, “with quality, high-value designs.”

Ford Motor Co. is in the midst of reorganizing its own product development system, and the new process will blur the distinction between cars and trucks. That makes a lot of sense, says analyst Andrea, since consumers really don’t differentiate, either. Buyers are simply looking for the vehicle that best meets their needs, whether that’s a sedan, wagon or sport-ute.

No more lookalikes

While domestic makers may be revitalizing their passenger car development programs, what they bring to market won’t necessarily look like the sedans, coupes and wagons they’re marketing today.

“If we continue to go down the path of creating generic sedans, (the decline) will continue,” warns Ford Director of Design J Mays. Ford’s answer, says Mays, can be found in the likes of the upcoming Freestyle. Built off the same platform, and on the same assembly line as the more conventional Ford Five Hundred sedan, the Freestyle will have a more SUV-like body, higher seating and all-wheel drive.

There are other reasons why it might make sense to renew the focus on passenger cars, analysts note. Light trucks, SUVs in particular, are coming under increasing scrutiny. And any disruption in oil prices and supply due to a Mideast war could shift the market’s focus away from low-mileage trucks.

Meanwhile, as the imports launch more light truck models and sharply boost production capacity, once-huge light truck profit margins will start to tumble, analysts forecast, narrowing the gap with the car side.

There’s also a generational issue. Entry-level cars, like the Cavalier, were traditionally used to attract the next generation of buyers. Now those customers are turning to the likes of the Honda Civic and Hyundai Tiburon.

The challenge, cautions J Ferron, head of the automotive practice at the consulting firm, Pricewaterhouse Coopers, “is that you’ve got to produce cars that make money.”

GM has been struggling for several years to come up with a Cavalier replacement, and has yet to find a profitable formula. But they’re not about to give up, company officials say, because there’s no alternative. For the Big Three to continue to ignore the passenger-car side of the business would be a move they’d make at their own peril.
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