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Detroit: Pedal To The Metal


When General Motors Corp. ripped the covers off a sparkling gold Chevrolet Cobalt coupe at the Los Angeles Auto Show on Dec. 29, it was more than just another car intro -- it was the opening salvo in Detroit's all-out assault on the passenger-car market. The Big Three are vowing that 2004 will be the year they reverse a 48-year decline in their U.S. car share -- and they plan to do it by rolling out a record dozen or so new car models. The Detroit Auto Show on Jan. 4-5 will feature several debuts, including the Ford Five Hundred and Chrysler 300C family sedans. It's all part of what DaimlerChrysler's Chrysler Group (DCX) Chief Executive Dieter Zetsche calls "an unprecedented product offensive."

It could hardly come soon enough. Japanese competition is eroding the fat profits from the SUVs, minivans, and pickups that sustained Detroit through the '90s. So while the Big Three will keep battling it out in the truck sector, they are putting a renewed emphasis on sedans, coupes, and station wagons, which still account for nearly half of U.S. auto sales. The wave of new cars is aimed at recouping profitability and beating back Japanese and European carmakers, which together have captured just over 55% of the passenger-car market -- and continue to churn out new hit models. Robert A. Lutz, General Motors Corp.'s (GM) vehicle-development boss, declared when he announced GM's car initiative a year ago that if the strategy doesn't work, "I will be seriously surprised and cruelly disappointed."

Even if the new car scheme does work -- a decided maybe -- it will take a while. After all, it took $4.3 billion and half a decade to revive Cadillac. Some analysts doubt Detroit's car offensive will work at all. While the Big Three have made enormous strides in style and quality, they are far from reviving an image damaged by decades of cars that fell apart, lost their value quickly, or were just plain ugly. "Their reputations have been blown to pieces," says UBS Warburg (UBS) analyst Saul Rubin. Despite recent strides in quality and design, he says, the Big Three "face an uphill battle just persuading consumers to try them out."

HEAVY INVESTMENTS

Even if the new models are hits, it's not as though Detroit's fortunes will immediately reverse. Iceology Inc., a Los Angeles auto forecaster, predicts that U.S. auto makers will lose an additional three points of car share in 2004, dropping below 42%. It will take a steady stream of consistently competitive, reliable, and stylish cars for the Big Three to woo Americans out of their beloved Toyotas (TM) and Nissans (NSANY) -- without dangling hefty rebates -- says Iceology analyst Wesley R. Brown. "It's too optimistic to expect a massive shift in consumer sentiment based on a handful of vehicles just being launched," he says.

Still, Detroit has little choice. Failure to revive car sales would almost certainly force domestic auto makers to close more factories. To avoid that, they've been investing heavily to develop new car models. GM, for example, began plunging two-thirds of its annual $7 billion product-development budget into cars two years ago, about what trucks had been receiving until then.

Each of the Big Three carmakers is taking its own road back into the car market. GM is returning to its roots with legendary Chairman Alfred P. Sloan's philosophy of "a car for every purse and purpose." The auto giant will offer a huge array, from the $60,000 Cadillac STS flagship sedan to Chevrolet's $15,000 Cobalt compact and $10,000 Korean-built Aveo subcompact. In between, GM has its newly redesigned Chevy Malibu, a plain-vanilla sedan aimed at the popular Toyota Camry and Honda (HMC) Accord, both of which are just as bland. For the sportier crowd, Pontiac will introduce the G6 sedan, already winning praise for its sleek styling.

Chrysler is taking a more focused approach. It's banking on a high-performance aura to make its new family cars, the 300C sedan and Dodge Magnum sport wagon, stand out from the crowd. Those cars feature five-speed transmissions borrowed from corporate sibling Mercedes-Benz, rear-wheel drive, and powerful Hemi V8 engines. Chrysler is directing ads for the new models squarely at middle-age, male car-poolers who would rather be drag racing than commuting. Says Chrysler boss Zetsche: "We don't want to sell commodities or appliances."

Ford is taking yet another tack. It's aiming its biggest guns at the heart of the car market: the family sedan, which accounts for one in every five vehicles sold in the U.S. Abandoning the one-size-fits-all strategy it employed with the Taurus, Ford hopes to slice the market by offering a bevy of new midsize entries. It's starting with the Five Hundred and Mercury Montego sedans and Ford Freestyle tall wagon this fall, in the hopes of restoring the dominance that the Taurus lost a decade ago. "There's no one way to design cars," says J Mays, Ford's chief designer. "The trend is choice."

Domestic auto makers know their success rides on delivering "gotta have" models. GM hopes to get some sizzle from a pair of Pontiacs: the sexy Solstice roadster and the GTO muscle car. Ford has its own traffic stoppers: the LeMans-inspired Ford GT and a red-hot Mustang, the best version of its pony car in decades. Classic proportions and sweeping lines can turn even a stolid sedan into a head-turner. Chrysler's 300C, for instance, has a whiff of Mercedes about it.

Detroit also has learned that it can't prosper on the basis of knockout looks and heavy horsepower alone. The Big Three have been vowing for years to improve their interiors -- now they are doing so. Banishing cheesy fabrics and flimsy-looking plastic, they've laid on comfy leather, brushed-metal dials, and soft, textured dashboards in vehicles such as the Five Hundred and 300C. GM brags that the interior of the Cobalt, a replacement for the Cavalier, will give Volkswagen's Jetta a run for its money.

The task now is persuading consumers to forget the past few years of deep discounting and pay close to sticker price for the new models. What the auto companies need "are new vehicles that sell well and don't need incentives," says UBS's Rubin. Reversing Detroit's dismal car fortunes will take years, if it ever happens. But at least the new wave of vastly better cars is a good place to start. By Kathleen Kerwin, with David Welch, in Detroit


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