Newspaper article The Christian Science Monitor

U.S. Auto Giants Race to Go Small

Newspaper article The Christian Science Monitor

U.S. Auto Giants Race to Go Small

Article excerpt

The auto industry is rushing to adapt to the world of $4-per- gallon gasoline, but the effort is a costly one that could tax America's homegrown carmakers most of all.

From Honda to Ford, all the automakers are ramping up production and design of high-mileage small cars and gas-electric hybrids. But consumers shouldn't hold their breath for hot deals on 50-mile-per- gallon vehicles.

The challenge: Product line make-overs can't be accomplished overnight, and a deep slump in current sales is burning through the cash available for investment.

In the past few days, Ford Motor Co. has announced production cutbacks for its light trucks, General Motors has unveiled big incentives to unload showroom inventory, and even Toyota has warned that it may have to scale back its sales target for the year.

In this climate of an overall sales decline, the US brand names are the hardest hit: For the first year ever, they may account for less than half the nation's car sales.

"That is certainly possible," says Tom Libby, an analyst at J.D. Power in Detroit. "In May we saw a dramatic shift in the marketplace."

For months now, high gas prices have been pushing consumers toward smaller cars and from sport-utility vehicles toward so- called crossovers, which offer SUV amenities on a lighter frame.

In May, it became clear that this could be a crossover year in other ways as well. If sales patterns for that month continue for the rest of the year, it's possible that Asian brand names alone could outsell Detroit-based Ford, GM, and Chrysler.

It's also possible that Toyota could capture the top spot in global car sales from GM.

Moreover, May marked what could be a crossover moment in consumer preferences. Car sales moved decisively higher than light-truck and SUV sales - which plunged after months of slowly cooling.

"It seemed to us that we reached a tipping point where customers began shifting away from these vehicles at an accelerated rate," Ford chief executive Alan Mulally said in a recent conference call with analysts.

As if the pressure from consumers isn't strong enough, new automotive technology is rising on the Washington political agenda for environmental and energy reasons. Sen. John McCain, the presumptive Republican nominee for president, proposed Monday that $300 million in federal prize money go to whoever can develop a leapfrog improvement in electric-car batteries.

Even as large and small companies push for breakthroughs, automakers' near-term plans are fairly straightforward: Emphasize the most fuel-efficient cars they can produce now.

"It is very important ... for all manufacturers to have hybrids in their lineups," says Mike Omotoso, another analyst at J.D. Power.

Here are some of the product-line shifts under way at major automakers:

* Honda announced a month ago that it will launch a new gas- electric hybrid model, like Toyota's Prius, in 2009. …

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