When it comes to cars, there’s no doubt about it: Detroit is back. American-brand cars and trucks are better than ever, and sales have been strong.
But this Detroit is different. The companies that used to be known as The Big Three are leaner, sharper, and wiser for the hard experiences of the last decade.
But for all of their recent success here at home, all three are facing big challenges. Here are three of the biggest.
Problem one: Green pressures will force big changes
Ford Motor Company (NYSE:F) is a huge company, with massive operations around the world. It’s Europe’s second-biggest automaker, and it’s investing a fortune to grow quickly in Asia. But ask any Ford executive about the company’s most important product, and they’ll tell you without hesitation: pickup trucks.
The all-new 2014 Chevy Silverado is GM’s most important new product in years. Photo credit: General Motors Company (NYSE:GM).
You’ll get the same answer at General Motors Company (NYSE:GM), which is starting a huge ad blitz today for its all-new Chevy Silverado, and at Chrysler, too. That’s a good thing right now, because pickup sales are booming. But the whole industry is under massive pressure to create products that use less and less gas, and full-sized pickups are very thirsty vehicles. How can Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) and Chrysler continue to make pickups that buyers will like while making the radical improvements in fuel economy that the government is demanding?
For that matter, how will ordinary cars meet the stringent new fuel-economy and emissions rules that will be in place around the world in the next decade? Are electric cars the way forward, as Tesla Motors Inc (NASDAQ:TSLA) is trying to demonstrate?
Maybe, maybe not. Right now, Ford Motor Company (NYSE:F) is betting on hybrids. And big automakers are teaming up: The Blue Oval has partnered with Toyota Motor Corporation (ADR) (NYSE:TM) to create a hybrid system that will work in its big pickups. Meanwhile, General Motors Company (NYSE:GM) just announced that it will work with Honda Motor Co Ltd (ADR) (NYSE:HMC) to create affordable cars that run on hydrogen fuel cells — and Toyota Motor Corporation (ADR) (NYSE:TM) , the hybrid leader, says it will launch its first fuel-cell car next year.
And all of those automakers, and most of the rest, are also dabbling in battery-electric cars — even though batteries remain expensive, heavy, and cumbersome.
How will they solve this puzzle? What will power the cars of the future? Good questions. But one thing’s clear: The companies that don’t solve it will be in a lot of trouble before long.
Problem two: Big losses and hard times in Europe
Why should American automakers care about Europe? Because they’re all losing a lot of money there, that’s why. Steep recessions in key European countries have driven new-car sales to a 20-year low. Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) each lost over $1.7 billion in Europe last year, and Chrysler’s partner/owner Fiat would be in dire straits if it weren’t for Chrysler’s recent success here in the U.S.
Ford’s Fiesta is one of Europe’s top-selling cars. Photo credit: Ford Motor Company (NYSE:F).
All three need the European market, for the scale it adds to their global operations. Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) are pushing ahead with elaborate turnaround plans that aim to get their European operations back to break-even by the end of 2015. And Fiat’s CEO is pushing ahead with a plan to merge fully with Chrysler, which will give both companies the scale they need to cut costs and be more competitive around the world.
But in the meantime, Europe is a money pit for all three. Analysts expect new-car sales in Europe to stay low until late in this decade. That means all of the Detroit Three will have to find creative ways to profit in the Old World — or risk more and bigger losses in years to come.
