How American Automakers Ignored Their Past History

American automakers are currently facing a cyclical downturn in auto sales that occurs on a regular basis. Usually, when there is a downturn in the economy, auto purchases decline, and General Motors, Ford and Chrysler all face declines in auto sales. However, this latest decline is based not only on an economic downturn, but also on fundamental changes in the auto industry that American automakers did not plan for. Rapid increases in gas prices have caused consumers to change the types of vehicles they are purchasing, and all three automakers have been caught with their pants down.

SUVs, which have been the dominate vehicles purchased in the United States for the last 15 years, have seen a dramatic drop in sales as gas prices increased. According to Edmonds.com, the market share of new large SUVs, large trucks, and mid-size SUVs has decreased between 12% and 20% between 2003 and 2008, while sales have increase between 35% and 60% in the small car and small SUV category. As American automakers focused on designing and producing large SUVs and large trucks, Japanese and other foreign automakers, sensing a change in the auto market, expanded their vehicle lineup to include more fuel efficient vehicles and power trains such as the Honda Civic Hybrid and the Toyota Prius. GM's total market share has fallen from 30.2% in 2002 to 22.1% in 2007, as US consumers have made the switch from GM Hummers and Chevy Tahoes to Toyota Prius and Honda CRVs.

This is not the first time that American automakers have missed the boat in planning for changes in the auto market. During the 1970s and early 1980s, they were slow to recognize that changes in oil prices were going to have a dramatic effect on the types of cars Americans were going to purchase. More fuel efficient Japanese vehicles were snapped up in droves, while the market share of American vehicles began a steady decline. During the 1990s, as oil prices fell, American automakers chose to focus on the high-profit margined SUV market, with less of a focus on fuel-efficient vehicles. One notable attempt at a fuel-efficient vehicle, the GM electric car EV1, was cancelled after GM decided that the battery technology needed to produce the vehicle was not developed enough, and the potential demand for the vehicles was too low. Despite the potential for the future of the technology, GM continued to pursue the large vehicle market. Only when fuel prices began to climb several years ago, did American automakers decide to get serious about alternatives to gasoline-based combustion engines.

In the meantime, Japanese automakers have once again trumphed American automakers by developing both new hybrid power trains for their current vehicle lineups, and new vehicles based on hybrid power trains. Although US automakers have begun to introduce partial hybrid systems in some of its vehicle lineups in the last couple of years, they are very far behind in the introduction of true hybrid vehicles. GM plans to introduce a "plug-in" hybrid vehicle, the Chevy Volt, that will allow drivers to drive up to 40 miles on just electric power when charged overnight, and get an equivalent gas mileage of over a 100 mpg. However, the earliest this car will be produced is 2010. Eventually, many automakers are focusing on hydrogen-based fuel cell technology to power future cars, but this technology is a decade or two away from mass-production.

What US automakers need to focus on is technology that will allow American cars to be the most efficient in whatever fuel they use. With the dramatic increase in oil consumption worldwide, Detroit must realize that the days of cheap gas and oil is gone. By producing cars that save on fuel consumption, they will be able to compete with Honda, Toyota, Hyundai, and the new up and coming Chinese car companies that also will be producing vehicles that offer more and more fuel savings. If they don't wake up to these challenges, and make some drastic change soon, the US auto industry could find itself with the same fate as the US textile industry - nonexistent.

Sources -

edmonds.com

"Who Killed the Electric Car"

http://www.autoobserver.com/2007/07/june-sales-gm-hits-all-time-low-market-share.html