Conor Twomey reports on Detroit's troubles
America's motoring press has been getting worked up at the news that Ford and GM intend to realign their pricing strategies for the 2006 model year. It seems both companies are going to knock several thousand dollars off the list price of some models to reflect the actual price that people can expect to pay for a vehicle, as opposed to the current situation where the list price is more or less meaningless.
Research has shown that customers don't even look at the sticker-price of Detroit metal anymore and instead seek out the best deal online or head for battle on the showroom floor. GM and Ford, who behave like feuding toddlers, started offering sales incentives in the wake of the 9/11 attacks as the US entered a period of uncertainty and inventory began to stockpile.
The ploy worked and the deals kept the industry going for those few shaky months into early 2002. But by the time the country and its economy had fully rebounded, customers had become used to several thousand dollars cashback and/or zero per cent financing for five years and went elsewhere if they didn't get the deal they wanted.
Then about two months ago GM launched its Employee Discount programme, which purported to let consumers buy GM products at employee prices. What actually happened was that buyers subtracted the GM discount from the fictional list-price and then went looking for a deal.
The promotion worked well and sales spiked, but the trade-off was tight margins and a glut of used metal. GM's sales jump prompted Ford to throw its rattle out of the pram and do a copycat programme. Despite all the extra sales neither company performed very well financially.
Such sweeteners are necessary in the first place because most US vehicles don't offer the all-round appeal of imported rivals. Some US cars are well made, some are nice to drive, some have nice interiors and some are beautiful to behold - but almost no individual car possesses high levels of each of these qualities in the same way a VW Golf or Lexus GS does.
After decades of poorly-made, vile-looking and soggy-handling vehicles, all but the most patriotic or value-conscious buyers have turned their back on the domestic dross and discovered the reliability and appeal of Japanese and European alternatives.
The only segments where foreign car-makers had nothing better to offer were the pick-up truck and SUV segments, which also happen to be the most profitable vehicles for America's floundering car-makers. It didn't do any harm that they got an exemption from the Bush government allowing them to make trucks and SUVs as big and thirsty as they wanted without impacting on the company's overall average fuel economy rating. Previous administrations had hoped to reduce US dependency on Middle East oil by forcing car-makers to improve fuel efficiency across their range.
Ironically, gas-guzzling SUVs and trucks didn't even have to have fuel figures on display on the forecourt, unlike every other vehicle on sale.
NATURALLY, the Big Three - GM, Ford and Chrysler - expanded their SUV and truck ranges, advertised their rugged vehicles aggressively and sold them at higher and higher profit as rising economies of scale drove overheads down.
Meanwhile, they pretty well neglected the fiercely competitive and rather expensive car business, opting to churn out reheated versions of ancient models until they just wouldn't pass safety or emission legislation any more.
Europeans scoff at Americans for their taste in big, bloated machines but it's not really their fault. A buyer wanting to support the US industry had a choice of an ancient Ford Taurus, an awful Chevy Impala or a dreadful Dodge Stratus. Or, for an extra few bucks a month, they could drive home in a macho F-150 or squash-court-sized Chevy Suburban.
It was hard to resist the lure of a big chunky off-roader, given that the US has few corners, that there is no shortage of space to drive or park, and that, at the time, petrol cost about 30 cent a litre.
Press reports intended to highlight the dangers of these vehicles did little to curb enthusiasm for the SUV. Most people felt higher rollover risk was an acceptable trade-off for better visibility and greater safety in the event of a direct hit.
Now, though, with petrol prices skyrocketing, people are fleeing the Suburbans and Trailblazers they bought at $15.000 below list price and financed for zero per cent APR because they could only just afford them to begin with. They are rolling back into their GM showroom looking for better fuel efficiency and what awaits them? The achingly dull Chevy Cobalt? The Vectra's ugly sisters - the Chevy Malibu or Pontiac G6? The fossilised Impala or laughable Monte Carlo?
The car-line GM abandoned long ago looks weak and unappealing beside foreign rivals, which means consumers are going elsewhere to buy. GM has lost around $1.4 billion in the first half of 2005 - that's after rolling out several new products such as the Cobalt and Equinox over the past 12 months.
The MX-5-rivalling Solstice, a rehashed Impala and a new range of suspiciously Opel-like Saturns will probably boost sales a little bit, but they're not going to be enough to turn GM's situation. What's needed is a change of mindset.
Ford is making money in 2005 thanks to its finance division, but despite a strong-selling F-150 and Mustang, the automotive side of its North American operation is dragging the company down. The Freestyle crossover is an encouraging effort, but America's not falling in love with the single underpowered engine option and looks that remind me of an overweight early 1980s Escort Estate.
It's a shame because otherwise it's a cracking car. The Five Hundred, the saloon version of the Freestyle, actually manages to be too big, even by Americans standards, and is crushingly dull to look at. Your other Ford choices include the old Focus, the old Taurus, the unloved T-Bird or the old Crown Vic. Not exactly a who's-who of automotive greats.
And then there's Chrysler, the smallest of the Big Three (now actually the Big Four since Toyota overtook Ford in the worldwide sales rankings), but easily the most profitable. Chrysler is no stranger to offering incentives but in the second quarter of 2005 it still managed to boost profits to almost $650 million.
So what's the difference between Chrysler and its cross-town rivals? Simple, really: it builds cars that people want to buy. With the exception of some soon-to-die models (the Stratus/Sebring pair, Neon and PT Cruiser) Chrysler's range comprises some crowd-pleasers: the new Dodge Charger is generating lots of interest, while the Chrysler 300 is one of the most successful US saloons in years.
The Magnum and Crossfire do reasonable business too, with the critically-acclaimed Dodge Dakota, Durango and Jeep Grand Cherokee holding their own at the lifestyle end of the business. Compared to its rivals, it's a solid line-up and, with a new Neon-replacement and a whole bevy of new Jeeps on the way, it's about to get even better.
Apart from the broad range of appealing vehicles, there are four other factors that set Chrysler apart. Firstly, it comprises just three brands: Chrysler, Dodge and Jeep.
Mercedes has nothing to do with Chrysler from a vehicle standpoint - it just passed along old platforms and engines that are still light years ahead of the underpinnings of US rivals.
Compare that to GM which struggles to juggle Saturn, Chevrolet, Chevrolet Europe, Opel, Vauxhall, Holden, GMC, Cadillac, Pontiac, Buick, Hummer and Saab (as well as being heavily involved with Daewoo, Suzuki and Subaru), while Ford is responsible for Ford USA, Ford Europe, Ford Australia, Mercury, Lincoln, Mazda, Aston Martin, Jaguar, Volvo and Land Rover.
But more important than the number of brands is how they are managed. GM and Ford are notorious for slapping a new grille on a car and calling it something new, which is insulting to informed buyers and detrimental to brands. Chrysler, on the other hand, does its best to give each brand and vehicle a distinct identity, though its recent Dodge Charger has drawn severe criticism for being too like the Chrysler 300 and not enough like the iconic 1969 (Dukes of Hazzard) coupé with which it shares a name.
THE third difference is that Chrysler isn't afraid to flog its products in Europe without pointlessly redesigning the car from end to end. Jeep and Chrysler MPV products do good business in both Europe and the US, and as the company expands its portfolio in Europe, Chrysler and Dodge could easily become rivals to the likes of Audi or Volvo, albeit with a little more work on interior quality and driving dynamics.
The final difference between Chrysler and its domestic competitors is that it doesn't really care what the other two are up to. While they match each other blow for blow, Chrysler goes its own way in responding to the market. It hasn't jumped on the "value pricing" bandwagon because it rightly assumes the idea won't work.
Buyers are too used to the whopping discount and cheap financing to give it up now and, while Ford and GM expend time, money and energy convincing them otherwise, Chrysler (as well as the Japanese car-makers) will simply keep on selling appealing cars to happy customers for a decent return. It's a seemingly obvious way to go about doing business that hasn't quite caught on in parts of Detroit.