Hey, Detroit, Here's Your Common Sense Survival Plan: Invest in Cars, Not Just Trucks and SUVs
If Detroit automakers give up their hard-won passenger-car business, they'll never win it back.
Over the past month alone, I’ve driven the all-new Nissan Altima, the all-new Genesis G70, the Honda Civic Type R, and the Volkswagen Golf. Two sedans and two hatchbacks, their audiences ranging from economy and family shoppers (VW and Nissan) to luxury and hot-hatch fans (Genesis and Honda). I personally can’t imagine a world without family sedans, practical hatchbacks, luxury sedans or track-storming sweethearts like the Civic Type R. You know who else can’t imagine it? Global giants like Toyota, Nissan, Honda, Volkswagen and Hyundai Motors, all of which seem to have no problem earning a profitable living with a mix of cars and light trucks.
But if the executives running Ford and Fiat Chrysler have their way, their companies won’t be building any such cars for Americans a few years from now—only pickup trucks, SUVs, and crossovers. Yes, Ford will keep the Mustang. But by next year, Fiat Chrysler won’t build a single passenger car in the U.S., only Jeeps and Ram pickups.
If you’re a Wall Street investor who cares only about goosing stock prices, the moves can be made to sound clear-eyed and logical: SUV sales up. Passenger car sales down. Pickup trucks delivering a disproportionate share of company profits. Ergo, kill all the cars and build more light trucks. Convince car holdouts that they should trade every last sedan, hatchback, coupe, and sports car for ovoid non-entities like the Ford EcoSport. Because, dammit, those crossovers can really do it all!
Sorry—not in my book. With all respect to Ford, I have no interest in driving an EcoSport or Explorer. I definitely can’t afford a Lincoln Navigator, and it’s too bulky for my lifestyle anyway. And I’m certain that millions of Americans feel the same: You couldn’t pay them to drive an SUV. Honestly, most SUVs seem boring and cookie-cutter. And no matter what these marketing geniuses tell us—that a “car-based” SUV is really just a car—we know it’s not true. There’s not a single tall-riding crossover that’s as light, aerodynamic, agile or fuel-efficient as a comparable, lower-slung car, even when the crossover shares an identical platform.
Eliminating traditional cars is the kind of expedient thinking that could only come from my hometown, Detroit. A mythical land, like Garrison Keillor’s Lake Wobegon, in which gasoline will never top $1 a gallon, and where cars like the Altima, Toyota Camry, and Honda Accord sedans—which together still found nearly one million American buyers last year—apparently don’t exist.
For every business-school PowerPoint that shows traditional cars in decline—including details like today’s record-low market share below 30 percent—I’ll generate another that shows why they remain critical to long-term success. The most dubious analysis shows those plummeting sales of passenger cars, assumes there’s no bottom floor, and declares cars forever doomed. It’s the reverse of the amateur investor who pours every dime into a fast-rising stock—in this case, call it SUV Inc.—and assumes the business will never tank.
As ever, that blinkered analysis fails to consider history, or what’s literally fueling the party that has some auto executives wearing lampshades again: Low gasoline prices, easy credit and massive incentives on full-size pickups—now running near $10,000 on the average transaction. Don’t forget the free pass on fuel economy that’s been handed to automakers by President Trump, who intends to freeze mileage and pollution standards for as many years as possible. Drink up, baby, before we all get drilled!
Yes, maximizing profits and reining in costs is critical to a homegrown industry that’s facing a slowdown after years of record sales. Ford is ramping up a “fitness” plan that’s a healthier-sounding euphemism for canning thousands of employees. At least $11 billion in restructuring charges will help free up investment for a slew of electrified models. General Motors announced this week that it will offer buyouts to 18,000 salaried employees in North America, also in part to fund electric and autonomous-car investment. That includes $1 billion this year for its Cruise Automation unit. (Honda will also pour $2.75 billion into GM’s Cruise between now and 2030).
Yet even a cursory look at Detroit’s balance sheets tells me that throwing the baby out with the financial bathwater isn’t a wise strategy. GM just released a third quarter financial report that shows $2.8 billion in earnings—in North America alone. This robust return, including a 10.2-percent net profit margin, came while GM was selling supposedly obsolete Chevrolet Malibus and Corvettes, Bolts and Volts, Buick sedans and wagons, and Cadillac ATS, CTS, CT6, and XTS sedans. Does Cadillac need four different sedan models? Surely not. But I’m staring at GM’s $2.8 billion mountain of cash, piled up over just 13 weeks. Now, explain to me again how automakers can’t stay in business unless they ditch traditional cars? Sure, some of the models I’ve listed aren’t contributing much, if anything, to GM’s bottom line. But that doesn’t mean those cars have no consumer value or strategic importance, as anyone who’s driven or admired a ‘Vette or electric Bolt might agree.
GM has so far resisted calls to dial back its own passenger car business. And I hope CEO Mary Barra plugs her ears and realizes that what may be loss-leaders on a balance sheet—economy cars, sports cars, or the EVs that may one day be automakers' competitive salvation—are, to customers, still one of the coolest, most-significant purchases they’ll ever make. The likes of Toyota and Honda get that, including ongoing investment in un-glamorous cars like Corollas and Civics. Each one is a chance to lock in a loyal customer who may one day buy a pricier Lexus or Acura, or a more expensive SUV.
In Detroit’s perfect world, every American would buy a $50,000 pickup truck every four years, each one delivering several thousand dollars in profits. But it’s never going to work that way. It definitely won’t work that way when the next energy crisis hits, fuel-prices spike, and freaked-out consumers run to any manufacturer that can deliver fuel efficiency at an affordable price. Hint: That won’t be Fiat Chrysler, whose current North American sales split of nearly 90 percent pickups and SUVs is a historic—and to me, perilous—imbalance for any major automaker. Financial planners lecture clients on the necessity of a diversified portfolio, to hedge against major disruptions. It’s no different for automakers, at least ones who aspire to global, full-line status.
Some industry analysts seem to believe that Detroit can take a hiatus from selling cars, and come strolling back when consumer tastes change, as though it’s as simple as flipping a factory switch. Nonsense. Making competitive cars is simply good practice. Detroit automakers haven’t been doing it well enough, for long enough, to take an extended vacation and expect a warm welcome back. Ask Cadillac or Lincoln how that works—and those are brands that never stopped building cars entirely. If domestic automakers should cede three entire segments—luxury cars, small cars, and family sedans—to Asian and European makers, consider their already-fragile credibility and momentum squandered. Ford made real inroads with the Focus, proving that Detroit could build a great small car for Americans, even if it was largely designed in Europe. Chrysler scored a smash hit with the 300 sedan. Those models not only delivered sales, but also burnished their brands, including among import-loving skeptics. Chrysler and Ford risk losing even more market share, or sparking outright hostility, if car loyalists see that these brands aren’t interested in serving them.
As ever, Fiat Chrysler is the one outfit that may not be able to make it in the car game. As I’ve noted, Fiat’s entire lineup of Italian cars and crossovers is generating fewer sales than did a single U.S.-based model, the now-defunct Dodge Dart—an imperfect sedan to be sure, but one that demonstrated more sales potential that a showroom full of Fiats. So I’d still argue that it’s not too late for FCA. The Dodge Charger and Challenger have proven that Americans will respond to FCA cars if they're distinctively American alternatives to the norm. Even as sales of most coupes and sedans have tumbled, Challenger and Charger sales are up sharply over the past five years. So how about we use those cars as an example of the possibilities? And let’s chalk up failures like the Dart or Chrysler 200 as failures of execution, instead of calling in the executioner for all cars.
Whether it's FCA, Ford, or GM, the answer to Detroit's problems isn’t to get out of the car business. The answer, as always, is to build better cars.