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Detroit’s dilemma: big cars or small?

Marketplace Staff Aug 13, 2008

Detroit’s dilemma: big cars or small?

Marketplace Staff Aug 13, 2008


Kai Ryssdal: Detroit’s doing everything it can to turn around those lousy sales figures Alisa was telling us about. Chrysler announced today it’s spending almost $2 billion to reconfigure an assembly plant to make smaller and, one figures, more fuel-efficient SUVs. GM’s said expanding its manufacturing in Asia to tap into an expanding market there. But do what they might, they’re still stuck trying to serve American consumers as well. Consumers that’re seeing gas prices fall for the first time in a very long while.

That might well be temporary, but it makes their balancing between big cars and fuel efficiency trickier than ever. Jessica Caldwell’s an analyst at Edmunds.com. Jessica, good to have you with us.

Jessica Caldwell: Nice to be here.

Ryssdal: So, let me ask you something: You ready?

Caldwell: Yes.

Ryssdal: Channel Rick Wagoner, the CEO of General Motors, for me for a second, or Bob Nardelli, the guy whose running Chrysler. What are they thinking as they see gas prices falling a little bit, and they are well aware of American consumers’ desire for the biggest car they can possibly get.

Caldwell: I think everyone saw this coming. I don’t think anyone saw it as fast. They definitely both realize that they don’t really have the product lineup that suits the United States’ tastes and needs perfectly. And I think a lot of adjustments have to be made, and they have to be made fast. They can’t have a five-, 10-year plan. They need a short-term plan. And really, they need to work on the communications of saying, “Hey, we have these vehicles coming out. They’ll be fuel-efficient; they’ll be smaller; and they’ll be good quality.”

Ryssdal: The problem is, though, I mean, they have started doing their product line shifts. They’re laying off people and they’re starting to make smaller cars. But those changes take years and millions of dollars.

Caldwell: They do. It’s not, it’s not going to be something that’s going to happen overnight, for sure, but they do, they have made some interesting steps forward. For instance, have made public knowledge that they plan to bring the Ford Fiesta and the Ford Focus. Both are very popular small cars in Europe. So, that takes a little bit of a shorter time period, since they already have the models. They have to make them fit and regulated for the U.S. market, but it’s a little bit faster than developing them from scratch.

Ryssdal: Can you help us understand what history tells us. I mean, we had in the 1970s, we had the oil embargo days and oil shooting up to, lo and behold, $1 or more a gallon. What did Detroit do then?

Caldwell: It’s kind of a different mind set. But I think a lot of people have reference that of we’ve been through this before. Is it going to be the same thing? Is it going to be different? And, we saw what happened before. We saw an interest in the small cars. But then eventually, the years went on and we discovered this great thing called the SUV and everyone had to have one. But now I think the shift has definitely been different. Now, we’re not seeing this going down. We’re seeing this stabilizing, staying the same. And we really just have no choice but to adapt to it.

Ryssdal: Is the calculus here tougher to figure out for the big car makers than it was back in the ’70s.

Caldwell: I think so. If you look at the number of models out on the road, the number of different types of vehicles that are out, it’s not such a clear-cut picture. I mean, we have hybrid large SUVs, hybrid small SUVs. There are so many different varieties and flavors now that we didn’t have back then. And many more players. So it’s all a much more complex equation than it ever has been, and it’s gonna keep going in that direction as different technologies and different things are spun off. It’s going to be more complicated.

Ryssdal: Jessica Caldwell, an analyst at Edmunds.com. Jessica, thanks a lot for your time.

Caldwell: Thank you.

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