It's business as usual: That's what General Motors and Chrysler want car buyers to believe as the two automakers work through the biggest financial crises in their history.
It's also wishful thinking. With both companies working through bankruptcy, firms that control nearly one-third of the U.S. car market are undergoing profound disruption. Ford, Toyota, and several other automakers are losing money and revamping their own operations. On top of that, the Obama administration is speeding up the pace at which car companies need to introduce new technology, cut tailpipe emissions, and make major gains in the fuel efficiency of their fleets.
With the whole U.S. economy in flux, in fact, there's probably no industry being transformed as rapidly as the car business. Here are some of the changes that will hit consumers over the next several years:
Higher sticker prices. It's a buyers' market right now, since sales are terrible and automakers are still building more cars than shell-shocked shoppers worried about the recession can buy. There may even be some fire sales over the summer, as nearly 3,000 GM and Chrysler dealers slated for closing shut down and liquidate their inventories.
But the sweet deals will probably dry up by the end of the year. Most automakers are aggressively cutting production to halt chronic overbuilding, and as inventories get leaner, prices will rise. Fewer GM and Chrysler dealerships means there will be less competition driving down prices. And the new Obama mileage requirements will force automakers to adopt expensive new technology, like direct-injection powertrains and advanced transmissions, that will ratchet up the sticker price. For consumers who can afford it, the time to buy is now.
Cars in Aisle 6. Just about the only place to buy a car these days is a traditional dealership, thanks largely to powerful franchise laws in most states that keep other competitors at bay. But as automakers slash their retail networks, dealers are losing their clout. For new offerings like minicars—and perhaps cheap Chinese imports—a big showroom with a dedicated sales staff might not even make sense. That could open the way for retailers like Costco or Wal-Mart to start selling cars. "A lot of new business models could emerge," says Craig Cather, CEO of forecasting firm CSM Worldwide. "We could see some crazy things in the next few years." In Mexico, for instance, at least one retail outlet sells Chinese-made cars alongside other types of consumer products. There's no reason such a model couldn't migrate north.
Toyota at the top. With the Detroit automakers trying to shrink their way back to profitability, it seems inevitable that Japanese carmaker Toyota will end up as the No. 1 seller of cars in the United States. GM has long been the market leader, with U.S. market share of about 19 percent today, compared with 17 percent for Toyota and 16 percent for Ford. CSM's projections show Toyota edging to the front of the pack by 2011, with Ford right behind and GM a close third. Those three automakers are likely to cluster at the top of an intensely competitive market for the foreseeable future.
GM on the rebound. GM's sales are sure to dip for a year or two, as the sprawling automaker winds down four of its eight divisions, right-sizes its dealer network and struggles to retain skeptical customers. But GM could once again become a powerhouse—and Chapter 11 could help. "GM's going to light it back up before long," says Gary Dilts of J.D. Power & Associates. "They have a pretty good product plan, and once they're out of bankruptcy they'll leave 10 years of debt on the side of the road." One suggestion Dilts has: Company executives should stop referring to "GM," which consumers associate with problems, and rely more on its Chevrolet and Cadillac brand names, which still have strong traction in buyers' minds.
[See 6 upsides to a GM bankruptcy.]
Saturns from overseas. GM's plan calls for unloading this money-losing division—but Saturn's not dead yet. This earnest brand for straight-talking folks has a number of assets that make it likely to draw a buyer: An expansive network of nearly 400 dealerships, modern facilities, and a well-known and accepted brand name. Penske Automotive Group is one potential buyer, with a plan to stick the Saturn name on vehicles imported from Korea. Chinese-made vehicles might even end up as Saturns. For the time being, GM will continue to provide vehicles for Saturn stores. But at some point, Saturns will morph into something altogether different.
An endangered Chrysler. Company executives wax buoyant about Chrysler's prospects once it emerges from bankruptcy and finalizes a merger with Italian automaker Fiat. It won't be nearly that simple. Even if it sheds debt and streamlines, Chrysler will still be a damaged brand that lacks competitive products until Fiat-built vehicles hit the company's lineup, which could take two or three years. Fiat doesn't even plan to invest money in Chrysler, and the government has capped its commitment at a very modest $6 billion. CSM forecasts that Chrysler's market share will fall from 11 percent today to less than 3 percent in 2012. For a mainstream brand that can't get away with premium pricing, that's close to the minimum threshold for survival. Which means the turmoil in Detroit is far from over.