A Bittersweet 2000 Gives Way
New-product home runs . . . and cars being booed off the field. A startling turnaround at one of the industry’s sorriest financial basket cases . . . and a venerable 103-year-old American brand biting the dust. A year of record sales . . . and also the most publicized--and deadly--product recall to hit the automotive world in decades.
Indeed, it has been a year of upheaval in the auto industry.
The furious pace of consolidation, as evidenced in alliances between auto makers and Internet companies and between car companies themselves, accelerated this year, and much more is to come as the players rush to partner up in areas ranging from e-commerce to fuel technology.
History was made this year. A Brazilian-born Lebanese working for France’s Renault is turning around Japan’s Nissan. Ford Motor Co. gave each employee a desktop computer, and General Motors Corp. is providing America Online to all its employees for three bucks a month. And U.S. auto sales are about to hit an all-time historic high.
Some players just plain were history, like ousted chief executives James Holden at Chrysler Group (over dismal financial losses), Katsuhiko Kawasoe at Mitsubishi Motors Corp. (because of extensive concealing of automotive recalls) and Masatoshi Ono of Bridgestone/Firestone Inc. (over the headline-grabbing investigation linking its light-truck tires to nearly 150 deaths in the U.S.). And on dealer lots around the country, it’s adios to Oldsmobile.
New cars and trucks were much in the news in 2000: The press and public loved Chrysler’s PT Cruiser and its retro styling, but most seemed to love to hate the Pontiac Aztek and its chunky angles.
In 2000, GM bought the half of Saab it didn’t own and took 20% stakes in Fuji Heavy Industries, maker of Subaru, and in Italy’s Fiat. Ford backed out of a deal to take control of South Korea’s Daewoo Motor Co. but bought Land Rover from BMW, adding another tenant to its Premier Automotive Group complex going up in Irvine (with its luxury marques Aston Martin, Jaguar, Lincoln and Volvo). DaimlerChrysler bought into Mitsubishi of Japan and Hyundai of South Korea, furthering Chairman Juergen Schrempp’s goal of becoming a truly global auto maker.
Schrempp is in hot water, however, over published comments that he never planned a “merger of equals” between Daimler-Benz of Germany and Chrysler Corp. of Auburn Hills, Mich., but had always intended to make the American industrial icon a unit of a combined DaimlerChrysler. Stateside employees were infuriated, and several shareholder groups, led by billionaire financier Kirk Kerkorian, have filed suits seeking billions of dollars in damages, charging that Schrempp misled them.
Thanks to an accumulation of consumer wealth and a fiercely competitive market full of discounts, in a few days U.S. auto sales will surpass last year’s all-time record of 16.9 million vehicles, motoring toward an estimated 17.4 million. This is huge news, indeed, because auto sales are considered a barometer of the economy in general.
Sales Trend Cools
But amid the record numbers, sales are actually heading downward, falling 3.4% overall in November from the year-earlier period and heading for 16.6 million in 2001. A faltering American economy is now setting in and, as usual, the manufacturing-intensive auto industry is among the first to take the hit. Sales started to slow in October, with the decline accelerating in November, when GM’s brands were down 8.1%, Ford’s 7.9% and Chrysler Group’s 5.2%. Meanwhile, Toyota Motor Corp. and its Lexus luxury division grew 4.6% for the month, Honda-Acura was up 3.5% and Volkswagen-Audi increased 8.9%.
In particular, the Chrysler Group of DaimlerChrysler stumbled suddenly with losses amounting to $1.7 billion in the third and fourth quarters. The downturn led to Holden’s ouster and the appointment of Schrempp loyalist Dieter Zetsche--the U.S. unit’s first German head and fourth chief executive in two years--to try to return it to profitability.
Ford last week cut its fourth-quarter earnings estimate by 13% and rolled back its first-quarter North American production plans for the second time, trimming scheduled production in the first three months of 2001 by 17%.
GM also this month cut its fourth-quarter earnings estimate by as much as 35% and announced it would eliminate 6,500 white-collar jobs in North America and Europe, lay off thousands more temporary and contract workers and close a factory in England. GM also will try to clear out inventory by trimming first-quarter North American vehicle output.
“The North American auto industry is facing an immediate and costly two- to three-quarter inventory correction that is pummeling the earnings of manufacturers and their suppliers,” said Merrill Lynch auto analyst John Casesa.
Perhaps the biggest headline underscoring the industry’s downturn was the Dec. 12 announcement that GM will shut down its Oldsmobile division, which had been in business since 1897. Despite massive spending on product development and marketing, Oldsmobile was one of the worst performers in 2000, and GM Chief Executive Rick Wagoner, on the job for less than six months, reluctantly took the ax to the money-losing division.
So 2001 is landing hard, and those who will feel it first and hardest are Big Three employees.
“The biggest blow in the auto industry is that workers aren’t going to get their $8,000 bonus checks this year,” said Diane Swonk, chief economist of Bank One Corp. in Chicago.
Runaway spending on incentives--discounts to move cars and trucks off dealer lots--has depressed corporate profits, especially at Chrysler, which even had to put incentives on its completely remodeled 2001 minivans.
“Incentives have really kept us propped up” to make 2000 the best sales year in history, said Jeff Schuster, senior manager for North American forecasting at J.D. Power & Associates in Detroit. “But later down the road, it has an impact on the bottom line, and that’s what we’re starting to see.”
Importers Speed Ahead
Meanwhile, the importers are enjoying a boom, from the low-end South Koreans up to the luxury Germans. Among the group, only Isuzu, Saab and Land Rover saw sales decline in the first 11 months of the year.
Not only will the import brands, overall, do far better in 2001 than the domestics, analysts predict, but consumers also are likely to benefit from increased competition as all the auto makers battle for position in a shrinking market.
List prices won’t be tumbling, but manufacturers will be offering rebates, lease deals and discounted financing on all but their hottest models to woo buyers, said analyst George Peterson of the consultancy AutoPacific Inc. in Tustin.
“The downturn won’t be catastrophic--we’ll still have one of the three or four best years in history for auto sales,” he said. “But dealers will be fighting for every sale, and it will be a buyer’s market.”
Analysts also expect it to be another strong year for pickup trucks and sport-utility vehicles. The emerging “crossover” SUV segment--vehicles that are styled like trucks but run on car-like platforms for improved ride and handling--is expected to be the strongest single sector of the auto market in 2001.
And where the domestic auto makers have led the industry in truck-based product for years, the importers created the crossover segment and are quickly catching up in full-size trucks and SUVs--often with superior products.
Toyota stunned domestic pickup leaders Chevrolet and Ford this year when its 2000 Tundra--the company’s first full-size, V-8-engine pickup--bested the domestics in almost every major quality survey taken. Honda has snatched minivan supremacy from Chrysler with its Odyssey, and late this year it brought out a new crossover SUV in its Acura line, the MDX, that immediately became that segment’s gold standard.
Such successes are the reason the importers are expected to do so well next year even though total sales will fall. They have been more astute than Detroit, through the years, in gauging consumers’ wants and needs. And they have been quicker--particularly the Asian auto makers--to respond to changes in the market. Next year will be no different, said Wesley Brown of Nextrend, an auto industry consulting firm in Thousand Oaks.
He even expects Toyota, the leading import brand in terms of sales volume and product diversity, to become the first importer ever to capture a 10% share of the U.S. market. And with DaimlerChrysler’s share for its domestic brands--Dodge, Jeep and Chrysler--hovering at just 14.6% of the market through November, that’s a significant breakthrough.
The big success story of the year is Nissan Motor Co., rescued by the executive with a multinational heritage, Carlos Ghosn, who devised an unprecedented turnaround plan after Renault acquired control of the debt-ridden Japanese auto maker in mid-1999. Ghosn pared hundreds of millions of dollars in costs in Japan, rocking the nation’s close-knit business community on its heels with moves that included closing several factories and eliminating traditional old-boy supplier networks.
At the same time, Nissan’s U.S. unit, bolstered by the hot-selling Xterra SUV, the four-door Frontier compact pickup and redesigned Sentra and Maxima passenger cars, was the only part of the company to post profit based on product sales. And Nissan North America isn’t letting up: It will spend a lot of 2001 hyping its forthcoming full-size pickup, its first, and a contemporary version of the famed Z-type sports car expected to be introduced in 2002.
The South Korean manufacturers, bolstered by ever-improving product quality, industry-leading warranties and their position as suppliers of affordable, entry-level new cars in a market that otherwise focuses on mid- and upper-income buyers, had a stunning 2000 and are expected to continue growing next year, especially if the economy begins sliding toward recession.
Hyundai Motor America’s sales rose 50% through November and its Kia Motors America subsidiary gained nearly 17% for the same period. Even Daewoo Motor America, saddled with a bankrupt parent in Seoul, posted a 120% sales gain in the U.S.
The European marques, led by a surging Volkswagen and its Audi subsidiary, improved their cumulative hold in the U.S. to 5.6% of the market, up nearly 10% from 1999. Including brands owned by GM, Ford and DaimlerChrysler, the Europeans sold almost 13% more vehicles here this year than last.
Jaguar Cars, part of Ford’s Premier Automotive Group and a marque that almost disappeared from the American market a few years ago because of dismal sales, is a prime example of the European comeback. This year, Jaguar dealers in the U.S. sold 39,493 cars through November, a remarkable 31.2% increase in Jaguar sales over the first 11 months of last year.
“When you look at what’s been happening in the market and then you look toward next year, it’s easy to see that the big losers will be what’s sitting in Detroit,” said Brown of Nextrend.
With the coming downturn and the accompanying shrinkage in car sales to some 16.6 million vehicles, competition will only further intensify. And the domestics, virtually alone in slapping incentives on their vehicles, will be squeezed even more for profits.
Wheeling and Dealing
But even with such a contraction, 2001 will be a pretty healthy year.
Before 1999, 16.6 million would have been a record, and fully 10% higher than the 15-million units that once represented a good year, noted Paul Taylor, chief economist of the National Automobile Dealers Assn. The previous record was 16.04 million in 1986.
The coming year also is likely to be marked by further consolidation, either in outright mergers or acquisitions or production and technological cooperation.
“This industry is not through with its restructuring,” said David Cole, director of the Center for Automotive Research in Ann Arbor, Mich. “Daewoo is not survivable. Somehow they’re going to disappear or be folded into someone’s operations, probably GM.”
All eyes will be on the major remaining independent auto makers: Toyota, Honda, BMW and Porsche of Germany and PSA Peugeot-Citroen of France. All have said firmly they have no interest in merging or acquiring.
Players in the industry see further diversification of new vehicles in 2001 and beyond.
“We’ll see increasing subdividing of categories. It will become a continuum, a blur,” said Richard Parry-Jones, Ford’s group vice president for global product development.
The consumer market will increasingly have more contemporary images, as with IKEA furniture from Sweden or the cookware designed by architect Michael Graves sold at Target stores, Parry-Jones believes. The auto market in turn will take the cue: “Similar designs as luxury items, but at affordable prices,” he said.
Jim Hall, AutoPacific’s senior auto analyst in Detroit, expects more car-based pickup trucks in 2001-03.
“Not like the Chevy El Camino, which is a car turned into a pickup,” he said. The new versions “will become more accommodating inside. There’s a huge growth potential because it will pull people out of passenger cars.”
Economist Taylor of the dealers association sees fewer vans and traditional pickup trucks, and more crossovers, in particular tall wagons with all-wheel drive such as the upcoming Isuzu Axiom sport wagon or the current Volvo Cross Country and Audi Allroad.
Role of the Net
For 2001, the Internet and its applications get mixed reviews from auto industry forecasters, but the Net is certain to play a big role--even if actually selling cars and trucks may not be one of them. This year was marked by some high-profile automotive “dot-com” stumbles, including CarsDirect.com canceling its initial public offering and Priceline.com losing the president and vice president of its auto business.
“Consumers need help, lots of it, to buy a car,” the two former Priceline execs, Maryann Keller and Kenneth Elias, wrote in Barron’s this month. “In the traditional purchasing process, what starts out as a desire to buy ends up as a selling activity” involving test drives, financing, trade-ins, down payments and buyers’ credit,” they said. “The Internet, by itself, cannot deliver this.”
Priceline.com had “the dumbest model I’ve ever heard,” said Greg Salchow, auto analyst at Raymond James & Co. in Detroit.
“If you have to make the first bid, the dealer has the advantage,” Salchow said. “The dealer pays $200 to Priceline, so the best-case scenario is you’re paying $200 more than you need to.”
But the Internet has a promising automotive future, if not in the actual transaction. The auto makers are trying to bring the Internet to the whole world of motoring, all the way to doing e-mail and making remote purchases from the car, as through GM’s OnStar service, which provides notification to emergency centers in case of a crash, guides drivers to destinations and suggests restaurants.
“You’ll see a lot more e-commerce on Web sites,” said Mark Hogan, president of E-GM, the auto maker’s electronic-business division. “There will be more leads to dealers, more mobile commerce through OnStar and other portals, and there may--there may--be purchases of vehicles.”
GM’s Saturn subsidiary, with its no-haggle pricing policy, is pioneering that effort through its alliance with Autoweb.com, just renewed for 2001. Through Autoweb, potential Saturn customers contact dealers for firm price quotes and can finalize the transactions without ever leaving their homes.
Auto dealerships will increasingly employ the Web next year, at the very least for information purposes, said Taylor of the dealers association.
“This summer, 83% of dealerships had Web pages, and I expect that to be well above 90% in 2001,” he said. “More dealers will be able to offer the ability to schedule sales or service appointments on the Web. And it will allow customers to research options and prices, do more of the basic paperwork over the Web.”
Dealers also are expected to use the Internet for their own business-to-business needs to control costs, an important concern as sales volume comes down next year.
Salchow of Raymond James believes there is huge potential in dealer use of the Web, for instance for training, technical support, even help from enthusiast groups.
“Think of how auto manufacturers could take advantage of that. When Jim’s Garage in Omaha has a real head-scratcher, the manufacturer could e-mail instructions or technical service bulletins,” Salchow said. “You can get it solved in a matter of hours. That’s extremely powerful for improving service.”
The other aspect of Internet business poised for explosive growth is telematics, or multimedia communication with vehicles, including providing Web access and other connections via satellite or cellular phone.
GM’s OnStar service grew to 850,000 subscribers this year, making it the biggest such service around.
But in 2001, “it will do more than concierge services--it will enable transactions,” Hogan said, making it part of GM’s “B2V”--business-to-vehicle--e-commerce strategy.
Despite signing on new partners, including several Japanese and European luxury marques, OnStar is not expected to be profitable for two to three years, said UBS Warburg auto analyst Saul Rubin.
“Telematics is an expensive undertaking,” he said, “and companies generally face high capital expenditure with little initial return if they expect to profit from telematics a few years down the road.”
Nevertheless, Rubin estimates that telematics revenues industrywide will soar from $4.2 billion in 2000 to $47.2 billion in 2010.
DaimlerChrysler has a telematics joint venture with Deutsche Telecom in Europe, and some Mercedes-Benz vehicles are equipped with a screen that can display news and information from the Web. Ford is introducing its own telematics service, Wing-cast, a joint venture with Qualcomm in San Diego, by 2002. Nissan has said it will install Wingcast in its Infiniti division vehicles.
Also ripe with promise are industry trade exchanges--those Internet marketplaces where manufacturers and suppliers can buy and sell components through Web auctions. The biggest is Covisint, made up of the Big Three and a handful of other players--and though it is reported to be picking up some new Japanese members, it’s still searching for a chief executive.
Chasing the Buzz
In the end, what turns customers on is exciting new products--buzz about an auto maker that only vehicles like the Volkswagen New Beetle and Chrysler PT Cruiser can bring. In 2001, could it be the Jaguar X-Type sedan, starting at about $30,000? Or the new Lexus SC, the brawny roadster with a retractable hardtop?
Or perhaps even the 2002 Ford Explorer, due in showrooms after the turn of the year, which will have a number of features, such as a lower center of gravity and side-curtain air bags, that promise to make it a safer vehicle than the ones at the center of the Firestone tire debacle.
Watch out also in 2001 for the newly redesigned Chevy TrailBlazer/GMC Envoy SUV, which will also have a short-lived Oldsmobile Bravada version, and several all-new entries led by the Buick Rendezvous, upscale cousin of the Aztek; the Jeep Liberty, fitting in between the Cherokee and Grand Cherokee; the Daewoo Korando SUV; and the Kia Sedona minivan.
But the car to watch in ‘01, and the one most likely to pick up a trunkful of Car of the Year awards, is the revived Ford Thunderbird. The elegant sub-$40,000 V-8 roadster sports a removable hardtop roof with a round porthole window, harking back to the golden days of the T-Bird in the 1950s.
Then, get set for a 2002 that’s even more packed with Things That Go Wow: the eight-cylinder Chevy SSR car-pickup; the sleek and brooding Cadillac Evoq roadster; the revived Nissan Z; the Hummer H2 military-style luxury SUV; and yet another much-hyped revival of an icon from the past, the new Mini from BMW.
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Terril Yue Jones reported from Detroit and John O’Dell from Los Angeles. They can be reached at highway1@latimes.com.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Imports Hit the Throttle ...
Foreign-based manufacturers have enjoyed the strongest growth in the last two years of record U.S. new-vehicle sales. South Korean brands such as Hyundai and newcomer Daewoo are gaining consumers’ confidence at the low end of the market; the top Japanese makes, Toyota and Honda, continue to appeal strongly to consumers who seek value and reliability; and Volkswagen remains on a tear, especially with younger buyers.
Percentage Growth in Sales
*--*
2000* 1999 1998 Daewoo** 122.5% 1,273.0% -- Hyundai 50.4 82.0 -20.3% Volkswagen 12.7 43.6 59.3 Toyota 9.8 7.0 6.4 Honda 7.0 6.6 8.0
*--*
U.S. brands generally are having a tougher time in the booming market, particularly lackluster marques that so failed to distinguish themselves that they are being extinguished by their parent firms (see Plymouth and Oldsmobile), and others that are striving to find a relevant niche in today’s climate, such as Mercury (poor cousin to Ford) and Buick (lost among the crowded mix at General Motors).
Percentage Loss in Sales
*--*
2000* 1999 1998 Plymouth -66.4% -10.8% -6.0% Oldsmobile -18.5 6.8 8.2 Mercury -16.6 6.8 -6.3 Jeep -10.3 20.7 -2.9 Buick -8.7 11.9 -9.1
*--*
* Though Nov. 30
** Started U.S. sales in late 1998
Source: Automotive News Data Center
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From the Archives
* The Firestone tire recall was one of the top news events of the year. For past stories from Highway 1 and Times news sections, see https://www.latimes.com/highway1.
