Magazine

The Stalling Of Motor City


Where is Detroit? The last time energy prices shot up unexpectedly, in the 1970s, it was Japan that led the way with profitable, fuel-efficient small cars. Detroit never did figure out how to make them and chose, instead, to make big profits off low-mileage, gas-guzzling SUVs. Now, oil futures are predicting high-priced gas for years to come, and Japan is again out front with innovative vehicles -- fuel-efficient, electric-gas hybrids.

When will Detroit learn? Certainly Ford gets it. It has a hybrid on sale right now, the crossover Escape SUV (based partly on Toyota Motor Corp.'s (TM) hybrid engine technology), and plans to sell about 45,000 over this year. But neither General Motors Corp. (GM) nor DaimlerChrysler Corp. (DCX) will introduce a single hybrid any time soon and their offerings will be slim for years to come. In the meantime, Toyota and Honda Motor Co. (HMC) are starting to flood the zone with tens of thousands of different hybrids. The Prius is hot, and Toyota will soon bring out a hybrid version of its Lexus RX and Highlander SUVs. Honda will launch a hybrid version of its popular Accord in December. Booz Allen Hamilton Inc. estimates that hybrids could make up 20% of the entire U.S. market by 2010. Detroit argues that you can't have mileage efficiency without giving up performance and luxury. Japan is proving just the opposite. Toyota's Lexus RX will have 270-plus horsepower and better than 27.6 mpg -- the current average of a compact sedan.

Detroit is way behind because it hasn't invested. True, it has enormous legacy costs from retired workers and huge benefit costs from current employees. But managerial shortsightedness is what's hurting the industry most. The Japanese are on their third generation of hybrid-powered cars. Detroit is barely on its first. As production is ramped up, costs will fall and profits will rise. Hybrids are a technological breakthrough for the Japanese. Unless Detroit invests in innovation, it risks falling behind once again. How sad.


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