Detroit's houses of steel are strutting their stuff down the runway of the Detroit Auto Show this week with a multitude of unique designs. While Ford (NYSE:F) and DaimlerChrysler (NYSE:DCX) are moving in the right direction, adapting to a changing market in order to boost sales, General Motors (NYSE:GM) may not be so fortunate.
Ford appears to have learned from a particularly brutal year for the North American automobile market. Large SUVs formerly generated the bulk of Ford's margins, but its sales suffered when consumers' appetite for the gas-guzzling autos waned. Now the company is shifting toward the crossover, a mix between a car and an SUV. The auto giant is introducing passenger cars and crossover wagons to compete with Japanese companies that have recently eaten up American market share -- a smart move on Ford's part.
DaimlerChrysler, arguably the up-and-comer of the Detroit three, remains committed to individuality with a slate of niche automobile models. At the auto show, DaimlerChrysler has creatively rolled out distinctive, innovative designs that rival offerings from Toyota (NYSE:TM) or Honda (NYSE:HMC), but purposefully do not mimic them. The new models include the Dodge Caliber, a small hatchback wagon designed to compete with the popular and successful Toyota Corolla and the Honda Civic.
In contrast, GM doesn't seem to have learned its lesson. After suffering consecutive monthly losses this past fall, an accumulation of approximately $4 billion in losses in 2005, and a junk bond rating, the company continues to bet on large sport utility vehicles. The firm doesn't plan to change its product offering until 2007, when GM will roll out a crossover "bandwagon" called the Buick Enclave. In the near term, GM is making a risky bet that gas prices will deflate and American consumers, who have become fair-weather friends to the SUV, will resume their outsized lifestyles.
At first glance, it's perplexing that GM would come out with large sport utility vehicles, since the gas prices that figured so prominently in the company's major losses are projected to remain high in 2006. GM seems to be setting itself up for an encore performance of 2005; it has already announced lower prices on some models to move inventory again. That doesn't bode well for the company's bottom line, nor for its shareholders.
Why is GM making such a bet on falling gas prices? Since the company didn't foresee the impact of high gas costs on its products, it didn't begin planning new models until last year. It takes two years to get a car from design to production, which means that newer, more fuel-efficient GM models won't roll out until 2007. As a result, it's likely that the company will suffer at least another year of lackluster performance.
While GM faces more of the same, Ford seems to be tentatively getting its act together by adapting to the market. DaimlerChrysler, however, should continue to lead the domestic automakers, given its unique designs and spot-on timing. I were betting on auto fashion in 2006, I'd put my money on Chrysler.
For related Foolishness:
Fool contributor Jennifer Schonberger does not own shares in any of the companies mentioned in this article.
