Motor City magic

Detroit rediscovers its old swagger as Toyota is stuck answering questions

Jeff Kowalsky/Bloomberg/Getty Images

They may no longer be the “Big Three,” but General Motors Co., Ford Motor Co. and Chrysler Group LLC were eager to use this year’s Detroit auto show to show the world there’s a Motor City comeback in the making. Amid the usual pulsing lights, puffs of dry ice and pounding music, Olivier Francois, president of the Chrysler brand, stood before a throng of automotive journalists and made references to 8 Mile, the 2002 movie starring Eminem as a white rapper who earns the respect of his peers in a hardscrabble Detroit neighbourhood, as he attempted to whip up enthusiasm for a redesigned Chrysler 300 sedan. “Today you will see what happens when we are backed into a corner,” he said, invoking the image of a prizefighter, before the 300 drove onto the stage and the ear-splitting decibels increased even further. “You will see that we come out swinging.”

Buoyed by recovering sales and corporate restructurings that are finally gaining traction, similar gestures of confidence were also on display by GM, which along with new small cars proudly displayed its silver and yellow Cadillac CTS-V race car (to mark the brand’s return to auto racing), and Ford, the only one of the three Detroit-based automakers that didn’t file for bankruptcy protection or take a government bailout. Ford’s blue-themed display rivalled the size of GM’s and Toyota’s, despite it being a smaller automaker. Ford also introduced a racy-looking Vertrek concept that could one day replace the Escape crossover. “Motown has got its mojo back, obviously” said Dennis DesRosiers, a Canadian automotive analyst.

And, interestingly, for every ounce of hometown swagger—something that had all but disappeared from the North American International Auto Show since the recession hit—there appeared to be a corresponding retreat from the big-name Japanese automakers who’d spent the last few decades eating the Detroit Three’s lunch. Toyota Motor Corp. executives spent much of their time at the Cobo Center, on the banks of the ice-filled Detroit River, answering questions about last year’s recalls of millions of vehicles, as opposed to talking about new models.

But what happens at the Detroit show, with its vast expanses of carpet, soaring displays and dazzlingly lit vehicles, is not always a reliable indicator of what’s likely to take place inside dealers’ showrooms. While the turnaround story at GM, Ford and Chrysler is real, there is still much work to be done. And it’s not like rivals have been standing still for the past couple of years waiting for Detroit to get its act together. Competition will be fierce.

Like other automakers, GM, Ford and Chrysler benefited immensely from last year’s rebounding auto sales in the United States, which grew 11 per cent to 11.6 million after hitting a low of 10.4 million a year earlier. While that’s still a far cry from the 16 million or so vehicles that were being sold prior to the recession, Ford and GM are nevertheless expected to report billions in 2010 profit (Chrysler, still the weakest of the three, is also closing in on the break-even mark after posting losses for the past few years). “The big thing that’s probably shocked everybody is that these car companies can now make money at vastly reduced volumes,” says Jeremy Anwyl, the chief executive of automotive website of “They are talking about break-evens now at sales levels of about 11 million a year. To put that in perspective, just a few years ago sales of 14 million would have been perceived as a disaster.”

GM underwent a particularly dramatic overhaul during its 2009 bankruptcy to emerge as a leaner and more focused company. It dumped debt, slashed half of its brands and took steps to wean itself off a destructive habit of relying on steep incentives—zero per cent financing and cash-back deals—to juice sales. “We have to keep our foot on the accelerator here,” said Mark Reuss, the president of GM’s North American division, moments before Chevrolet introduced a sleek new subcompact car called Sonic, which will be sold alongside Chevy’s compact-sized Cruze. “But I think we’re running North America with the right philosophy.”

And, to top it off, the company took a major step toward shedding its “Government Motors” stigma through a successful IPO in November that raised US$23 billion, helping to pay down roughly US$50 billion worth of loans from Washington and Ottawa.

Chrysler also filed for Chapter 11 in 2009 and, in exchange for bailout cash, agreed to a marriage with Italian carmaker Fiat. Despite a lack of new models to sell last year, it too managed to post an impressive 16.5 per cent increase in U.S. sales to 1.1 million vehicles, hitting the target set by CEO Sergio Marchionne. He is now predicting sales increases of 25 per cent in 2011 as Chrysler sends its new 300 sedan to showrooms alongside a vastly overhauled Sebring sedan, now called the 200. Chrysler will also be selling the tiny Fiat 500 in North America, although analysts say it will be the incorporation of Fiat’s small car technology in future models that will truly determine Chrysler’s future.

Ford has taken a different road, having had a head start on its restructuring. With several popular new models and quality rankings that now rival Japanese automakers, Ford’s U.S. sales soared 19 per cent in 2010, and the company managed to increase its market share there for the second time in two years. It also ousted GM as Canada’s sales leader for the first time in more than half a century.

There’s more to come. In Detroit, Ford introduced a new seven-passenger C-Max minivan, marking a return to a segment it abandoned in 2006. It also showed off two five-seat C-Max variants powered by regular hybrid and plug-in hybrid engines (regular hybrids alternate between gas and electric power, while plug-in hybrids run solely on electric power until the charge is depleted and a gas engine takes over), and an electric version of its Focus small car. “The fuel-efficiency story is going to be a major one,” said David Mondragon, the CEO of Ford Canada. He added, however, that Ford has a “very balanced approach to the marketplace,” ranging from the tiny but well-equipped Fiesta subcompact to Ford’s bestselling F-150 pickup trucks. “And with flexible manufacturing, we can build whatever consumers want.”

Having the right mix will be critical as analysts forecast a continued recovery in the all-important U.S. market. Jeff Schuster, director of automotive forecasting for JD Power and Associates, predicts sales of 12.8 million vehicles in the U.S. this year followed by 15 million units in 2012 and a return to nearly 16 million a year later. (Canadian sales increases will be less dramatic, rising to 1.6 million next year compared to 1.5 million in 2010, but only because the market didn’t collapse as badly.) That suggests big profits down the road for Ford, Chrysler and GM, providing they can hang on to their current combined 45 per cent market share, up one percentage point from last year.

But there is still reason for caution. The Detroit Three’s impressive gains came during a year when foreign competitors hit uncharacteristic road bumps. Toyota, in particular, was forced to recall millions of vehicles because of sticky gas pedals and poorly designed floor mats. The ordeal shook customers’ faith in Toyota’s painstakingly built reputation for quality.

With the crisis still fresh in North American consumers’ minds, Akio Toyoda, grandson of Toyota’s founder and its current CEO, made his first-ever visit to the Detroit auto show this week. He participated—however awkwardly—in the unveiling of a new “family” of hybrid and plug-in electric vehicles wearing the Prius badge. Later, in a discussion with reporters, he compared Toyota’s current challenges to a popular Japanese snack. He held up a package of rice balls, available at convenience stores all over Japan. While they are good to eat and definitely safe, Toyoda said through a translator, they will never be as desirable as homemade onigiri, made with love by Japanese mothers and packed in schoolchildren’s lunches—which is how he said Toyota intends to make its cars. It may be an odd analogy to North American ears, but most analysts agree that Toyota is a company that delivers on promises, regardless of how they are expressed.

At the same time, other Asian automakers are also making strides. Despite posting weak U.S. sales last year, Honda Motor Co. is likely to have a winner on its hands after unveiling a more aggressive looking 2012 Civic “concept” in Detroit that is expected to hit showrooms later this year. Meanwhile, Korean automaker Hyundai Motor Co. has boosted its U.S. market share to nearly five per cent. “The Japanese build really good products and the cars from Korea are getting better,” says Tony Faria, an automotive expert at the University of Windsor. “And in a few years we will be seeing Chinese cars coming on strong.”

For the Detroit Three, meanwhile, the transition to smaller, more fuel-efficient vehicles remains a work in progress. And that could be a problem as government fuel-efficiency standards become stricter. Ford is leading the charge, with about 55 per cent of 2011 vehicle sales in Canada to come from cars or crossovers, compared to 40 per cent in 2005. GM, meanwhile, says cars and crossovers accounted for 52.6 per cent of Canadian sales last year. As for Chrysler, the small car strategy is falling largely to Fiat. “Chrysler’s strong suit historically has been big cars and trucks,” says Chrysler Canada president Reid Bigland. “Not everyone wants to get crammed into a small car.”

Indeed, American consumers have long associated small and fuel-efficient with cheap and wimpy—a perception GM, Ford and even Chrysler are working hard to change. They are also hoping that the development of hybrids and electric vehicles will help bridge the gap. But while there’s plenty of “green” vehicles on display at the auto show—even Porsche displayed a hybrid race car, while Mercedes unveiled a neon yellow, electric version of its gullwing SLS—there is so far relatively little evidence that consumers are willing to pay extra for the technology, with hybrid sales currently accounting for only a few per cent of overall sales.

Detroit also needs to be careful not to overreach. “The big challenge is for them to maintain this new-found discipline as the economy recovers,” says Edmunds’ Anwyl. “And that’s because there’s always going to be scrappy competitors looking to pick up market share, and they will be more aggressive.”

Back at the Chrysler display, hip-hop music is thumping and Eminem’s lyrics are quoted. “It may seem strange to hear hip hop in a French accent,” says Chrysler’s Francois, an executive who came from Fiat. “But to me, the words still ring true. This is a story that resonates with people on every side of 8 Mile Road. This is a story of how people react when their backs are up against the ropes.” Of course, picking yourself up off the mat is one thing. Delivering a knockout blow of your own is quite another.

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