Detroit's Car Industry Shows Signs of Life
A few years ago, Kiplinger's stopped hearing from the Buy American crowd, who complained regularly about foreign models topping our annual rankings. It's no secret why: Even the most patriotic U.S. car buyers grew disenchanted with Chrysler, Ford and GM products.
Just look at their dwindling market share: Five years ago, the Big Three owned 62% of the market; last summer, sales of Detroit vehicles dropped below 50%. Plus, Toyota is expected to displace GM as tops in global sales after end-of-year figures are tallied.
True, high pump prices and the housing slump have dampened demand for gas-guzzling trucks and SUVs, which Detroit produces in spades. But the fundamental reason is that buyers lost faith in the home team and shifted allegiance to the visitors. That shift grew easier as overseas carmakers built factories here, blurring the line between U.S. -- and foreign-made.
Yet Motor City is closing the quality gap. Perception just hasn't caught up with reality.
More reliable. Buick ties Lexus, the perennial winner, for fewest problems in the latest J.D. Power & Associates report on the dependability of three-year-old vehicles. (At the same time, reports of problems with Lexus cars are up from the previous year.) Even more surprising: Cadillac and Mercury come next, out-pacing Honda (fifth) and Toyota (sixth). Jeep, Pontiac, Ford, GMC, Chevrolet, Dodge, Chrysler and Saturn still fall below the industry average for dependability, but every nameplate on that list (except Chrysler) reported fewer problems in 2007 than in 2006.
The most recent Consumer Reports reader survey on reliability burnishes the reputation of the domestics, too. The survey includes model years 1998 to 2007, so the best nameplates (Honda, Acura, Scion, Subaru and Toyota) and the worst (Pontiac, Mercedes-Benz, Cadillac, Hummer and Land Rover) are the usual suspects. But for the newest vehicles, Ford Motor wins bigQ41 of 44 Ford, Lincoln and Mercury models score average or better in predicted reliability.
Meanwhile, Toyota has slipped to the point that Consumer Reports will no longer automatically recommend new and redesigned Toyota models. One big factor: problems with the redesigned Camry V6's transmission.
Domestic carmakers still have a ways to go. Of the newest Chrysler models, only two-thirds score average or better in predicted reliability, and only half of GM models earn average or better scores.
Within the past year, Chrysler, Ford and GM all added longer-term powertrain warranties, too. That's a strong bet on their products' dependability.
Better designs. Reliability is only part of the equation. The aesthetic appeal of DetroitUs vehicles has improved too. Chrysler scored a big hit three years ago with the boldly styled 300 sedan. Two years ago, the sleek, attractive Ford Fusion replaced the tired, humdrum Taurus (although the Taurus is reincarnated for 2008 in a Ford 500 body). The 2007 Saturn Aura won North American Car of the Year plaudits. And the once-homely Malibu has a stunning redesign this year. GM in particular has listened to critics of its interiors, enhancing materials and design inside its vehicles.
Better reliability and appeal also boost resale values. For example, the new Malibu is expected to be worth 7% more (as a percentage of sticker price), compared with the outgoing model, after five years, according to Kelley Blue Book. Both Ford and GM had an average gain in resale value of 1% among 2008 models, while resale value of Chrysler models is expected to remain flat. The unanswered question is whether Detroit can earn enough to stay in the game. Ford is in the most precarious financial position, but even in the event of a merger, it will keep churning out cars and trucks.