- The Washington Times - Monday, November 22, 2004

Second of two parts

Toyota Motor Co. is going after one of the last strongholds of the American automobile manufacturer: pickup trucks. In Texas.

The fourth-largest manufacturer plans to build a truck plant on the home turf of the American truck market, where one in four Texas licensed drivers drives a pickup, compared with one in five nationally.

So far, American auto manufacturers “did a great job on the truck side,” said Brett Smith, product and technology forecasting director for the Center for Automotive Research, an industry research group.

“They have for all intents and purposes lost the passenger-car market.”

In 2002, 43.5 percent of registered vehicles in Texas were classified as “light trucks,” compared with 37 percent nationally, according to Wards 2004 Automotive Yearbook. Light trucks are pickups, vans and sport utility vehicles.

Toyota is just one of the foreigners — or “transplants,” as American manufacturers call them — that are moving to wrest pickup trucks and SUVs from the American stranglehold.

Together, GM, Ford and DaimlerChrysler produced 70 percent of the 2.2 million big pickup trucks sold in the United States last year.

Toyota sold about 100,000 of its Tundra pickups in 2003. When its Texas plant is completed in a few years, the Japanese company plans to produce about 250,000 big pickups per year.

The company’s marketing includes a multimillion-dollar advertising campaign that began this summer focusing on the investment and jobs it brings to the United States.

Nissan plans to increase production of its Titan pickups made in Mississippi from 60,000 to 100,000 per year.

Honda says its SUVs are a growing market in the United States. The company sells the Pilot, Element, CRV and MDX SUVs.

“It’s certainly an area we’re going to continue to focus on,” said Art Baldwin, spokesman for Honda of America Manufacturing in Marysville, Ohio. “We’re trying to serve what the customer wants, whether it’s cars or trucks.”

At the 2004 Detroit Auto Show, Honda introduced a concept vehicle it called a “sport utility truck,” a cross between an SUV and a pickup.

Japanese pickup trucks made in the United States might come as a surprise to some auto buyers.

“When you say Honda, Toyota and Subaru, you think of small cars,” said Tracey Furman, a legal- advertising buyer from Kensington. “When I think of American cars, I think of pickup trucks and SUVs. We own two American vehicles, a Chevy pickup and a Ford Explorer, and I’m quite pleased with both of them.”

Trucks and SUVs return 7 percent to 8 percent profit per vehicle, compared with 2 percent to 3 percent for passenger cars, according to the Center for Automotive Research.

Incentives keep coming

Increasingly, U.S. manufacturers are using incentives to try to drum up sales to beat the competition.

Rebates and other incentives have grown an average of 10 percent in the past three years, primarily among U.S. manufacturers, St. Louis-based Maritz Automotive Research reports.

American manufacturers expanded them during the post-September 11 economic slump as a way to spur sales. General Motors started the trend by offering zero percent financing and was quickly matched by competitors.

Now the companies can’t get rid of them. Sales plummet as soon as the companies cut back on their incentives, but resume when they are reinstated.

“Most everybody is saying they’re going to be around as long as we can see,” said Treffen White, an analyst with R.L. Polk & Co., an auto industry data-services company.

Their biggest impact has been in switching auto sales to a seasonal phenomenon that fluctuates with discounts and incentives, rather than changing choices of automakers, he said.

“They’ve been very unsuccessful in dealing share back from the Japanese and others,” Mr. White said. “It affected the timing of purchases, not the make or model.”

This year, to clear away leftover 2004 models, Detroit’s Big Three are offering a record average of $4,011 in incentives, according to the Edmunds True Cost of Incentives report. GM leads the way with $4,467 in incentives, Ford is second with $3,686 and Chrysler third with $3,384.

Foreign manufacturers try to reach a steadier stream of customers by relying more on “invisible” incentives, GM spokeswoman Deborah Silverman said. Invisible incentives usually mean options that can be added to a vehicle, such as side air bags or sunroofs.

The Japanese are offering incentives averaging around $1,000 per vehicle, Edmunds reports. South Korean automakers Kia and Hyundai are averaging $1,833. European companies average $2,562.

Making money without sales

The U.S. companies are leaning more heavily on their financing operations to keep profits up. In-house financing means they can make money off customers’ interest payments.

Without their loan operations, both General Motors and Ford would have posted losses in the third quarter.

Another business maneuver of the U.S. companies is wider use of joint ventures in other countries.

GM and Ford are concentrating on the Asia-Pacific market. GM’s four Chinese manufacturing ventures sold 58 percent more vehicles in the first half of the year than a year earlier.

The Asia-Pacific market earned GM $236 million, compared with $328 million in U.S. automotive sale earnings.

Merging with a foreign competitor was the only thing that saved Chrysler from bankruptcy. The 1998 deal with Germany’s Daimler-Benz has returned Chrysler to profitability, but at a cost — 7,800 American jobs last year.

Nevertheless, Chief Executive Dieter Zetsche announced DaimlerChrysler will introduce nine new models.

Its earnings this year were helped by the success of models such as the Chrysler 300C sedan, the Dodge Magnum wagon and the Dodge Durango SUV.

Nevertheless, the true measure of success for any auto manufacturer is how well it competes in the United States, the world’s biggest auto market, according to the Center for Automotive Research.

“The world car manufacturers will look to the U.S. market to gain both high volume and the prestige of competing in the toughest market in the business,” said Mr. Smith, the center’s forecasting manager. “This will make it even harder for the Big Three and better for the consumer.”

The future is now

The American companies are pinning their hopes on new innovations.

Ford employs about 1,200 engineers at two research-and-development facilities, one in Dearborn, Mich., and the other in Aachen, Germany. They develop hundreds of patents each year.

“Sales leadership is tied to technological leadership,” said Ford spokeswoman Marcey Evans.

Coming examples of Ford’s innovations include three new models of hybrid electric vehicles, beginning with the Escape SUV that was introduced this summer. The hybrids combine gasoline engines with electric motors to improve mileage by about 25 percent.

The Japanese introduced hybrids several years ago, and American automakers are rushing to catch up.

The appeal of the hybrids is being proven by Honda’s gas-electric vehicles, such as the Civic hybrid, which the Environmental Protection Agency lists as getting 48.5 miles per gallon.

Average monthly sales have risen 18.4 percent this year from 2003, at least partly as a result of rising gasoline prices, according to Honda officials. There are months-long waiting lists to buy a Toyota Prius or Honda Insight.

Other new technologies Ford is developing include “direct injection” gasoline engines and fuel-cell engines that operate on hydrogen.

DaimlerChrysler is introducing a new “multidisplacement system” on its engines that uses advanced electronics to increase power and reduce fuel consumption.

Additional efficiencies are expected from use of new lightweight composite materials that would reduce fuel consumption without hurting performance or safety.

A 10 percent reduction in automobile weight will improve fuel efficiency as much as 8 percent, Technical Insights reports.

“The industry is very much a global industry,” said Stephen Girsky, an automotive industry analyst for the Wall Street investment firm Morgan Stanley. “If someone is going to grow, it’s going to come at the expense of someone else. At the end of the day, the best product wins.”

PART I As the wheel turns

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