Putting Detroit in the Shop

Bob Wiley has always driven Detroit iron. So when the 62-year-old retired Air Force man decided this year to trade in his Ford pickup truck for a more comfortable car, he test-drove Ford and Buick sedans. But he was turned off by bland styling and worries about reliability. His son suggested he try a Toyota Avalon. Wiley was wary. "That's nothing but a damn Camry with a skirt," he said. Then he drove an Avalon. "Wow, this thing's a rocket," he said as he raced to 75mph in a blink. "And it's like you're in a crypt it's so quiet." Best of all, the Avalon gets 31mpg highway, perfect for those long trips to see the grandkids in Texas. Just that quick, Detroit lost another customer. "Detroit, are you listening?" asks Wiley. "Why can't you build me a peppy yet economical car like the Avalon?"

Detroit might have a hard time hearing any more bad news after the week it just had. The Big Three--nowadays known as the "Detroit Three," since Toyota will soon be the world's No. 1 automaker--posted a staggering $7.4 billion combined loss for the three months ended Sept. 30. Even Detroit's best performer, General Motors, couldn't win over Wall Street by cutting its losses to only $115 million, an improvement over last year's third-quarter loss of $1.7 billion. The problem: despite all the factory closings and job cuts, GM, Ford and Chrysler are still losing money on every car and truck they sell in America.

What's the matter with Motown? It all comes down to the models it sells. Car buyers simply don't find them as appealing as foreign wheels, which explains why Japanese models fetch an average price of $24,289, while American cars go for just $21,597, according to a new study by car consultant Harbour-Felax. Increasingly, car buyers see Detroit's offerings as too big, too gas-thirsty or too bland. Even with Americans rattled by volatile gas prices, Ford is launching a supersize Expedition SUV, and Chrysler is rolling out its blingy Aspen SUV to take on the new Cadillac Escalade. "There's been a belated explosion of SUVs when Detroit should have seen the handwriting on the wall," says veteran auto analyst Maryann Keller. "They need to realistically look at what they have on the drawing board."

In other words, fixing Detroit's product problems requires a serious menu overhaul. For now, Detroit has only a quarter of the fast-growing small-car market, while nearly two thirds of its models are slow-selling pickups, SUVs and minivans. "No automaker can suddenly turn on its heel and triple its number of small cars," says GM car czar Bob Lutz. But dealers want Detroit to move faster. The Japanese make over their models every five years, while American automakers take seven or eight. Detroit has been slow to diversify because it became enthralled with the big profits it once made off SUVs. Only now is it rolling out fuel-efficient crossover utilities like the Ford Edge and GMC Acadia, while the Japanese have an eight-year lead in that hot market. "Detroit needs a complete reinvention of how they do business," says Mike Jackson, CEO of AutoNation, America's top car dealer.

That reinvention will require Detroit to rethink how it conceives, designs and executes cars, analysts say. Like the Japanese, Detroit needs to engineer multiple models from the same car chassis. (The Camry, for example, serves as the base of the Sienna minivan and the Lexus ES350.) They need to simplify how they engineer them, so that they are easier to build, have better quality and make more money. Toyota has one cruise-control device for every car from the cheapest Scion to the top-end Lexus. But one Detroit carmaker engineers 81 different side-view mirrors for its cars. "Detroit hasn't solved the root of its problem: they still have too much complexity," says consultant Laurie Harbour-Felax. "That could save them $1,000 to $1,500 per vehicle--that's up to $15 billion for GM."

When it comes to quality, Detroit's biggest problem is consistency. "When the quality of the domestic cars go up, it seems to take the pressure off," says David Champion, auto-test chief for Consumer Reports, which named all Japanese cars as its top picks for the first time this year. "And then they drop down again." Analysts say Detroit spends too much time celebrating its successes when it should be running scared. J.D. Power still ranks Toyota and Honda above cars wearing the Ford, Chevy and Dodge badges, even though those U.S. brands are much better than they used to be. Part of the problem: Detroit builds too many cars and lets them languish on lots too long. With Detroit's models out in the elements for three and four months (versus a month for Toyota), those nice factory paint jobs fade and chip. That's why one of the biggest complaints about Detroit cars is the paint quality, says J.D. Power's Neal Oddes. "They're improving," says Oddes, "but they've still got a long way to go."

With fuel efficiency now in fashion, Detroit needs to focus on the models that took a back seat during the SUV boom: family sedans and small cars. But designing Japanese clones has proved to be a dead-end strategy. "Detroit spent 25 years copying the Camry and emasculating the American car," says Global Insight auto analyst John Wolkonowicz. "Now they need to bring back real American cars for real American people, the folks who watch NASCAR and shop at Wal-Mart." At GM, Lutz showed the ability to channel his blue-collar customers on a recent walk through the cavernous Chevy design studio. Reviewing renderings of a future family car, the Swiss-educated exec lingered over a sleek, understated model and a brawny version with muscle-car cues. "Because of my fondness for European style, I'd lean to that one," Lutz said, pointing to the first car. "But when I put on my business hat, I'd go with this other one because it's all-American. And that's a direction the Japanese can't go."

But isn't an all-American small car an oxymoron? Chrysler thinks it's come up with an answer: the Dodge Hornet, a snarling bulldog of a hatchback. "We need to do small and bold," says designer Ralph Gilles. "Anything but cute." In-your-face American style might work on a small package. But first Chrysler has to approve the Hornet for production. While Detroit dithers, foreign automakers are running away with the shifting new car market. And Motown is struggling to prove it can get its groove back.