DETROIT -- The U.S. auto market just finished its second-best sales year ever. The economy is strong, the stock market is booming and interest rates are low. Is this a new golden age for the auto business?
Yes it is, but it's different from the glory days of the 1950s. Then, a booming economy and population were chasing too few cars. The industry today -- with the exception of some mainly Asian laggards -- is thriving amid a global glut. And while prosperity is again a big factor now, this golden age has more to do with smarter manufacturing, technological wizardry, sharper design, savvier shoppers and competitive pricing.
New-car prices, which used to rise every year, are dropping. When Daimler-Chrysler AG introduced the redesigned Jeep Grand Cherokee sport-utility vehicle this past fall, it trimmed $250 off the price of the base model, even though it included new extras like an improved engine and more luxury features. The price on the premium model was unchanged, despite its being packed with such extras as a climate-control system that uses an infrared beam to monitor skin temperature and ensure the driver is comfortable. With too many vehicles chasing too few buyers, only unique models offer a chance to charge anything close to a premium.
For older products, price cuts are all but inevitable. Ford Motor Co. chopped $1,000, or 5%, off the price of its mainstay Taurus midsize sedan and $1,840, or 8%, from the station wagon when it introduced the 1999 models recently.
Consumers are getting more for their money from many high-end luxury-car makers, too. German auto makers have kept their U.S. list prices unchanged from last year, and they're offering new features as standard or for less than before. Extras, options, gizmos and buzz are all in evidence at the Detroit auto show this week.
The auto industry is a long way from anything analogous to Moore's Law, the computer-industry axiom that processing power doubles every 18 to 24 months while prices remain static. But the direction is more and more the same. Auto executives and economists say 1999 probably will be the third straight year of real deflation in the prices of cars and trucks.
"The world has changed," says James Holden, sales and marketing chief at DaimlerChrysler. "We're not microchips, but there are a lot of industries where people are used to paying less every year, not more."
What's more, technology is upending time-tested ways of doing business, from the engineering lab to the dealer showroom. The Internet, for instance, has made it possible for almost anyone to find out what the invoice price of a new car is, and use that to dicker with dealers. High-powered computers let auto makers design two vehicles for what they used to spend on one, and in half the time.
Of course, the industry still remains among the most vulnerable should the economy turn down. A sales drop would eat up much of the cash that now goes into new products, stunting innovation.
At the moment, major auto makers are responding to all this change by unleashing a wave of freshly styled vehicles. Many of them are risky attempts to stretch the traditional categories that have long been the high-volume mainstays of the market, like midsize sedans or large, two-door pickups. Some car makers are reviving classic designs that baby boomers loved, like the 1950s Thunderbird or the early 1970s Datsun 240 Z sports car.
Others are inventing vehicles that defy classification -- and releasing them at a pace that defies tradition. Chrysler's PT Cruiser, for example, looks like a three-quarter-size reincarnation of an Al Capone squad car. It has a drop-fendered front end, and a tall back end. It's shorter than a Dodge Neon, but it's not a small car. Because you can take out the back seats to create a flat floor, it's a truck. In the back, a versatile cargo-bay shelf can be used to create a picnic table or a floor covering for messy cargo. In past years, Chrysler probably would have been content to show off the car as a concept -- a one-of-a-kind concoction that might years later spawn a production model. But at this year's show, the company cut the delay to a matter of minutes, unveiling a concept version and then, a minute later, a production-ready model that will be in showrooms early next year for less than $20,000.
"It's wonderful to be in this industry now," says Tom Sidlik, the management-board member at DaimlerChrysler responsible for developing the Cruiser and other small cars. "We've come from where all those dummies who said we were going to die in 1980 to now it's more products than ever."
How can Chrysler pull off such an unconventional, risky vehicle? The company's engineers have figured out how to use computer technology and smarter management to develop two small cars -- the PT Cruiser and the new Neon sedan -- for what it used to spend on one. Supercomputers allow engineers to test designs without building costly prototypes, simulating everything from the look of the interior to what happens in a crash. Common parts let engineers and designers assemble new models almost as if with Lego bricks. Although the vehicles look completely different, DaimlerChrysler officials say they could be built on the same assembly line, meaning the company could quickly tweak production to react to the market. The two models also could sire other offspring-industry analysts speculate about a sport-utility vehicle, although the company isn't talking.
The PT Cruiser and whatever other innovations might join its family are critical to the financial success of DaimlerChrysler's small-car operation. Traditional compacts like the Neon are a dime a dozen because what consumers really want in this era of prosperity and cheap gas are hot image vehicles like SUVs and sports cars. While Mr. Sidlik insists that the new Neon will be profitable, the margins on stand-out vehicles like the PT Cruiser are far wider. Plus, hot new products have a halo effect on the rest of a company's lineup, drawing buyers into showrooms where they often end up buying other vehicles.
Of course, it's not as if auto companies haven't innovated before. The Chrysler minivan was something new in 1984. So was the pickup truck with an extended cab and an extra door, when General Motors Corp. introduced it in 1995. What's different is that innovation now is seen as the only sure way to escape a relentless, profit-eroding spiral.
"You have to have the car that's going to break through the clutter," says Tom Gale, chief of product strategy and design for Chrysler brands at DaimlerChrysler. "You've got to get consumers' attention."
Until the 1990s, companies would go as much as seven years between costly major redesigns on models, sticking to minor cosmetic changes from year to year. Now, the life span of a design is about four years, and the annual touch-ups often are much more thorough.
A walk around the Detroit auto show reveals just how high the bar is set. Not far from the PT Cruiser exhibit, there's a forthcoming Honda model that uses a combined gasoline and electric drive system. With that, the maker promises, the car could drive from Detroit to New York on a single tank of gas. Farther down the hall is the striking TT roadster, a well-rounded car that suggests a stylishly flattened Beetle, from Volkswagen AG unit Audi AG. Bayerische Motoren Werke AG is showcasing a prototype of what it calls a "sports-activity vehicle," which the company says will handle like a sports car yet haul like a minivan. It's expected to be in showrooms this fall.
At the Nissan Motor Corp. display, the No. 2 Japanese auto maker is showing off the icon of its determination to rebound from massive financial problems: a modernized remake of its 1970s 240 Z sports car. At Chevrolet, designers are offering an updated version of a two-door, sporty wagon that borrows from the 1950s Chevy Nomad station wagon. The new model is one of five concept vehicles GM unveiled at the show, the largest number of new ideas it has ever displayed.
Bill Scott, a 35-year GM veteran, is in charge of watching over the company's interior designs -- something he considers a weakness at the world's biggest auto maker. He knows he has a huge chore ahead of him to raise GM standards as he compares the Chevrolet Impala to the competition.
"That's unforgivable," he says pointing to an exposed screw that holds a handle on the door. "We do a lot of things to suspensions and engineering that, when tested, only a small percentage of consumers care about," he says. "But maybe if we spent 50 cents on chrome or took care in tooling our plastics or used quieter switches, those would be sellable differences to consumers that they would pay for."
At the VW display, he talks glowingly about the open floor space on the Golf. "Look at how it creates a sense of bigness in the interior," he says running his hand across the clean square space. He points out that Volkswagen still manages to save costs despite offering nice appointments such as chrome door handles on the inside. The secret: The same door handle is used on almost every car the company makes.
Mr. Scott says deeply entrenched processes inside GM -- and for that matter within much of the industry -- mean that it isn't easy to make quick changes to meet consumers' needs or demands. "The old guard often says we can't do this and we can't do that," he says. But new blood is forcing the U.S. industry especially to shed its conservative Midwestern values and adopt a sort of sleek international sensibility.
One of the hottest industry outsiders is Ford's global design chief, J. Mays. Famous as the man who restyled VW's Beetle, Mr. Mays now is one of the key players in Ford's drive to become more innovative and more attuned to shifting fashions.
At the Detroit show, Mr. Mays is basking in raves for his latest creation, a creamy-yellow prototype of the new Ford Thunderbird. The T-bird that Ford was selling in 1997 was a lumpy midsize coupe so unprofitable that the company killed it. But in about a year, the T-bird will live again as a two-seat roadster that borrows much of its exterior style from the classic Thunderbirds of the 1950s and early '60s. Those cars, Mr. Mays says, "reflected the unbridled optimism of the time." Likewise, he adds, the new model reflects the general feeling these days that "life is pretty good here in the U.S."
Ford Chief Executive Officer Jacques Nasser loves the new T-bird's styling, too. But as Ford's master cost-cutter, he is even more excited that the company can build the car for a fraction of the investment it would have made several years ago. These types of niche vehicles, created using lots of parts shared with other models, are critical to Ford's broader strategy to become not just a car company, but the "world's leading consumer company for automotive products and services," in Mr. Nasser's phrase. "From the consumer standpoint," he adds, "it's a boon."