Four Myths from Detroit's Auto Show

There's less hype than usual, but it wouldn't be America's signature car show without a generous helping of hyperbole.

The North American International Auto Show, a January ritual in Detroit, is traditionally awash in "concept cars" and other fanciful experiments that represent automotive wishful thinking. Some eventually get built, while others drift into oblivion as budgets shrink, priorities change, or reality intervenes.

This year, auto execs would rather talk about practicality and thriftiness than horsepower and engine size. Or not talk at all: Nissan (NSANY), Infiniti, and a few smaller automakers didn't even show up, citing the need to conserve cash. General Motors (GM) and Chrysler, fresh recipients of billions in federal aid and a smackdown on their corporate jets, are on their best behavior, eager to prove that nary a dollar of taxpayer funds will be wasted. Even the healthiest automakers got the memo: Conspicuous consumption doesn't sell. Not for awhile, anyway.

[See the 12 most important cars of 2009.]

Yet even humility can be exaggerated, and a number of misperceptions are emerging from this year's Detroit auto show. Some of them:

Electric cars are just around the corner. Every year in Detroit, there's a groupthink buzzword, and this year, it's "electrification." GM, Ford (F), Chrysler, Toyota (TM), and even a Chinese automaker have announced plans to build a wide variety of "electric" cars that you'll be able to charge by plugging into an outlet at home, like a laptop. But read the find print. Some of these will be battery-powered cars that have no gas engine as a backup, so if you run out of juice you could end up stranded far away from a charge. Most will be so expensive that the builder will eat most of the cost, which means only the most solvent automakers will be able to build them. Others will have limited range or other tradeoffs that will require a totally different way of driving - which most Americans will probably take a pass on.

GM and Toyota are the farthest ahead on electric cars, and they're both issuing lots of caveats (in their own way). Toyota, which just announced a tiny all-electric urban runabout due in 2012, has been reluctant to make lavish claims about electric-car capabilities, instead pointing out the virtues of its long-proven hybrids. GM has placed a huge bet on the Chevrolet Volt, a plug-in that will also have a gas engine, and is due in late 2010. But the expected sticker price of the Volt is creeping up toward a heady $40,000, reflecting the difficulty of building a rechargeable lithium-ion battery that's muscular enough to power a car. "This isn't a chip shot," says Larry Burns, GM's technology chief. He predicts that big-time battery technology might not turn out to be profitable - with a cost that mainstream buyers can afford - until 2020. And very few automakers will sell electric cars while taking a big loss on each.

[See what dismal sales in 2008 portend for 2009.]

Chrysler is resurgent. It would be a great storyline if Detroit's perpetual underdog, which just received an infusion of $4 billion in taxpayer money, were able to show the world that it's on the mend, after nearly running out of cash. And that seems to be precisely what Chrysler wants people to think. “We have 8 [new car] introductions over the next 18 months,” says CEO Bob Nardelli. “That should put to bed the notion that Chrysler is going away.”

It hasn’t. Chrysler, with one of the least-efficient fleets in America, is trying to overcome its profligate past with brand-new plans to build one or more electric vehicles that could debut as early as 2010. But instead of developing the technology in-house, Chrysler would get it from unspecified partners, and its claim is a verbal pledge, not a firm financial commitment. Meanwhile, other Chrysler indicators are terrible. The firm has canceled other new products, leaving even its own dealers guessing about what it will offer in a year or two. And it’s being vague about whether it will reopen its factories on January 19, as promised when the company announced a month-long shutdown in December. There are also rampant rumors of Chinese manufacturers and other low-ball bidders offering to buy small pieces of Chrysler‘s portfolio, carving the company into fragments. “It’s going to be tough for Chrysler to survive,” says one leading industry analyst. The most likely outcome he foresees: “Absorption” by another automaker.

[See why Obama should end the bailouts.]

It will be a banner year for hybrids. After years of dominance, Toyota’s hybrids will finally encounter tough competition in 2009 from some newcomers on display in Detroit, like the Honda (HMC) Insight and the Ford Fusion and Mercury Milan hybrids. Fans of the technology hope that more offerings in a broader range of prices will help speed widespread acceptance of hybrids. But the expansion of the hybrid market is happening just as gas prices sneak back below $2 per gallon, and anxious consumers are pinching every penny. If there’s any encouraging news for hybrids, it’s that just about every automaker expects gas prices to shoot back up once the economy rebounds, which will make hybrids more appealing.

So the hybrid heyday may be deferred. Yet even if sales are low, there are benefits to selling hybrids. “We think the Fusion hybrid will improve our favorability ratings,” says Mark Fields, head of North American operations for Ford. “It will have that halo effect that Toyota got from the Prius.” Better than nothing.

[See how the feds will govern GM and Chrsyler.]

There will be a quick and orderly economic recovery. Sales are down across the industry, and virtually all automakers are hoping that “pent-up demand” will create a boomlet once the economy bottoms out and consumers start to feel more confident about their jobs. That’s what normally happens during mild downturns. The problem is, this isn’t a normal downturn, and one of the recurring economic themes over recent months has been the failure of conventional models to predict what’s likely to happen. And there are plenty of reasons to think it could take years for the car industry to rebound: It’s hard for buyers to get loans, household net worth is still in a free-fall, and unemployment is likely to skyrocket in 2009. Maybe such optimism will seem more genuine at the 2010 auto show.

Disclosure: no positions

Comments

[Jeff B.:]

Well stated, Rick. Too bad the ailing automakers are focusing on vaporware solutions to a rather mundane problem -- none of them have been able to make profitable & desireable smaller, efficient gas engine cars to compete with Honda & Toyota, Mazda, etc. That's where they really get their clocks cleaned.

Jan 14 09:11 AM

[303820:]

JEFF...YOU NEED TO CHECK THE GM DEALERS... GM HAS MORE CARS WITH 30+MPG THEN HONDA AND TOYOTA COMBINED...THE CHEVY COBALT IS A GAS ENGINE CAR THAT GETS UP TO 37MPG, IS BUILD IN USA AND COST AROUND $13,000...COMPARE IT TO THE TOYOTA PRIUS AT $23,000!

Jan 14 09:56 AM

[Paul Killinger:]

Or compare it to the Nissan Versa starting at only $10K.

Jan 14 10:44 AM

[303820:]

You'd compare your nissan versa to the chevy aveo under $10000 (a smaller car then the cobalt)!

Jan 14 11:21 AM

[31October:]

This was a great article. My 6 car mags don't even like to admit production reality.

303820 is correct that Toyota perception is unrelated to Toyota reality.
But as for GM, getting 30MPG highway is nothing. The EPA highway test has a 47 MPH average, with no stops. My big honkin' guzzler gets 30MPG under those conditions. My [American designed and built] Honda gets 40+ under those conditions.

A Versa is over 50% pricier than stated above.

And please do not mention the Aveo as a plus for American cars. It is a noisy, cramped, bad handling, bad braking, bad steering, piece of garbage that crumples like foil in a wreck.
Additionally, it is a S. Korean Daewoo import.

Sorry to be picky; I'm just REALLY into cars.






On Jan 14 09:56 AM 303820 wrote:

> JEFF...YOU NEED TO CHECK THE GM DEALERS... GM HAS MORE CARS WITH
> 30+MPG THEN HONDA AND TOYOTA COMBINED...THE CHEVY COBALT IS A GAS
> ENGINE CAR THAT GETS UP TO 37MPG, IS BUILD IN USA AND COST AROUND
> $13,000...COMPARE IT TO THE TOYOTA PRIUS AT $23,000!

Jan 14 12:46 PM

[wondergirl:]

I remember when Ford made the "Falcon". It was 1963. Fuel effecient and cheap. NO ONE WOULD BUY IT.
Then Ford built the Pinto, Bobcat, Comet, Maverick, Fairmont.....great mileage....none of these are built today.

GM built the Corvair. Got great gas mileage. NO ONE WOULD BUY IT.

Don't tell me that people want little/tiny cars that get good mileage.

People want BIG cars....Americans are BIG. America is BIG.

Build BIG cars that get good mileage. That is what we all want.

Jan 14 12:56 PM

[frumski:]

I drive a Ford Focus, get 35+ mpg if I keep it under 70. Not only that, it has lots of power, and is solid as a rock. American buyers need to give US automakers a chance. We don't need to lose another 3 million jobs.

Jan 14 01:03 PM

[Thadeus III:]

Ok so let's rehash the past. Early Honda Accords (1979-1982 were rust buckets. They couldn't keep fenders on them. They also had a tendency to start using oil at relatively low mileage and then gas mileage would also suffer. Google it. Nissan (Datsun) engines have always had problems with oil seals failing. Even later model 1998 - 2005. I could go on. Both currently made Honda Accord ( harsh ride, poor seat comfort, poor mpg) and Toyota Camry ( slipping transmissions) are suffering from quality and performance issues.But how about this from last week:


Zacks.com
Time to Hit the Car Lots
Thursday January 8, 10:16 am ET
By Paul Raman, CFA

We think it is an excellent time to hit the car lots. Sales are slow, inventories are high, raw materials (steel, chemicals, plastic, rubber) are depressed, and interest rates are near zero. Demand is off due to the credit crunch. Dealers and manufacturers are hurting and are hungry for business.

Despite the bad publicity recently, Chevrolet and Chrysler have some of the BEST products in the market. The non-Chevy part of General Motors (NYSE: GM - News) must be restructured. Also, Honda (NYSE: HMC - News) has emerged to be a Big-4 player in the US. They work and act more domestic than even Chrysler.

We were DISAPPOINTED with Ford , TOYOTA and NISSAN , and feel they have TIRED OLD product lineups. A strengthening Japanese Yen may force Toyota and Nissan to become the Big-5 and Big-6 in the US. Toyota's QUALITY ratings were the LOWEST among all models studied, especially for the pickup/SUV part of the product line.

Jan 14 01:54 PM

[slowdown:]

Right....EPA test conditions can never and I mean never be reproduced in the real world. On the other hand - my 2008 Chevy Impala got 33 MPH last February driving from Flint, Michigan to Tulsa, Oklahoma. On top of that - it is Flex Fuel....and take my word for it...when the cost impact is minimal or I save...I burn it for spite. Right now...it's a savings so I'm burning it.


On Jan 14 12:46 PM 31October wrote:

> This was a great article. My 6 car mags don't even like to admit
> production reality.
>
> 303820 is correct that Toyota perception is unrelated to Toyota reality.
>
> But as for GM, getting 30MPG highway is nothing. The EPA highway
> test has a 47 MPH average, with no stops. My big honkin' guzzler
> gets 30MPG under those conditions. My [American designed and built]
> Honda gets 40+ under those conditions.
>
> A Versa is over 50% pricier than stated above.
>
> And please do not mention the Aveo as a plus for American cars. It
> is a noisy, cramped, bad handling, bad braking, bad steering, piece
> of garbage that crumples like foil in a wreck.
> Additionally, it is a S. Korean Daewoo import.
>
> Sorry to be picky; I'm just REALLY into cars.
>
>
>
>

Jan 14 02:30 PM

[slowdown:]

BTW...the Aveo is built in Mexico not Korea. Has been for a year.



On Jan 14 02:30 PM slowdown wrote:

> Right....EPA test conditions can never and I mean never be reproduced
> in the real world. On the other hand - my 2008 Chevy Impala got 33
> MPH last February driving from Flint, Michigan to Tulsa, Oklahoma.
> On top of that - it is Flex Fuel....and take my word for it...when
> the cost impact is minimal or I save...I burn it for spite. Right
> now...it's a savings so I'm burning it.

Jan 14 02:39 PM

[babyray:]

Lost your job yet? Keep buying Foreign!My Hummer will crush your Hybrid.

Jan 14 07:29 PM

[working at ...:]

Remember.... When your neighbor gets laid off its a recession,
when you get laid off it's a depression!

Jan 14 11:59 PM