If you're wondering why American auto makers' share of the U.S. market continues to shrink, look no farther than the news that Ford Motor (NYSE: F) is licensing hybrid engine technology from Toyota (NYSE: TM).
Once again, Ford and the rest of Detroit are behind the curve. Back in the 1980s, Ford, General Motors (NYSE: GM), and DaimlerChrysler's (NYSE: DCX) then independent Chrysler unit were slow to catch on to consumers' interest in fuel economy and quality. The Big Three played catch-up in the '90s and managed to rebound, particularly by tapping into Americans' love affair with SUVs.
Once again, though, Detroit is struggling. Just a decade ago, American auto makers controlled 74% of the U.S. market; now, the figure is 60%. Ford should be feeling the most pressure, since Toyota displaced it as the world's second-largest car maker by sales after General Motors.
With its hybrid technology lead, Toyota is likely to continue gaining ground. According to a company spokesman quoted in the Boston Globe, "Demand has gone through the roof" for the Prius hybrid, which Toyota rolled out in the U.S. in 2000. To meet the surge in interest, the company intends to increase annual production to 47,000 vehicles from its earlier plan of 36,000. Meanwhile, Honda Motor (NYSE: HMC) introduced the Civic Hybrid in 2003, and expects 2004 sales will exceed the nearly 22,000 sold last year. Ford, Chrysler, and GM, meanwhile, will finally sell hybrids to retail customers later this year.
True, Honda and Toyota are probably not achieving huge margins on their hybrid economy cars, and the Big Three's strategy of employing the gas/electric systems in lower-mileage vehicles has merit. But there's no doubt that for now Detroit has ceded leadership in the area to Japanese competitors, especially Toyota. Despite falling victim to complacency in the past, it seems that U.S. auto makers still haven't learned that to win you have to innovate and take risks.
Of the domestic group, Ford seems to be in the most trouble. January and February year-over-year sales were down 5% and 2%, respectively. Particularly hard hit were passenger car sales, which declined 14% in both January and February. Looking at the styling on the Ford Taurus and Crown Victoria models, I can see why.
Unfortunately, additions for the 2005 model year, such as the Ford Five Hundred, appear equally bland. The 2005 Ford Mustang's retro design offers the best hope, but even its appeal probably will be limited to enthusiasts. This lineup and its sales to date are enough to make one suspicious of Ford's forecast of 12% to 21% earnings growth in 2004. For Ford investors, the best thing may be to turn Japanese.
Motley Fool contributor Brian Gorman doesn't own shares of any of the companies mentioned.
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