Detroit: Hoping for a Small Victory

Motown's mantra has always been "bigger is better." But now that General Motors and Ford are cutting a combined 60,000 workers and closing more than two dozen factories, Detroit is slowly and painfully learning to live with less: fewer employees, fewer plants, fewer paying customers. "For too long, we've used the advantage of size to avoid change," Bill Ford said in a televised address from his company's design studios last week, where he shrank his payroll by 25 percent and encouraged his remaining employees to "think like a small company."

That starts with a new focus on models Detroit has long marginalized: small cars. With rising gas prices tanking SUV sales, there is much talk and some action out of Detroit on more-modest mileage misers. At last month's Detroit Auto Show, Chrysler won praise for its snub-nosed Dodge Caliber sportswagon, GM introduced a Saturn hybrid and Ford showed the sporty three-seat Reflex concept car with hybrid power and an interior made from recycled Nike running shoes. Bill Ford stood beside a clay model of the Reflex as he delivered his "Think Small" speech. "Small cars," says Ford exec Mark Fields, "present a lot of opportunity for us."

But Detroit's turnaround has opened up an even greater opportunity for the Japanese, the small-car experts. At the Detroit show, the Japanese Big Three rolled out a trio of 40mpg runabouts, the Toyota Yaris, Honda Fit and Nissan Versa, already hot sellers overseas. The minicar market in the United States will more than double by 2008, predicts auto consultant CSM Worldwide.

Despite Detroit's small talk, there's still skepticism from Wall Street to Washington. Ford is criticized for taking a glacial six years to implement its "Way Forward" recovery plan. And GM's stunning $8.6 billion loss in 2005 came in twice as bad as expected. "GM is on the edge of a cliff," says Bank of America analyst Ron Tadross, who now predicts a bankruptcy is "more likely than not" for the No. 1 automaker. Even the White House isn't offering solace to America's humbled auto giants. President George W. Bush told The Wall Street Journal last week that GM and Ford should not expect a federal bailout and urged them to make "a product that's relevant." Ouch. But with even W belittling Motown, it just might be the right time to go small. Keith Naughton