Golden Opportunity Awaits US AutomakersBy Jeremy Anwyl May 10, 2011
Remember when Japanese-built vehicles were considered tinny and cheaply built? Probably not, but that was a widely held view back in the Fifties, Sixties and even into the early Seventies.
Then the second Arab Oil Embargo hit in 1973, pushing up gasoline prices and prompting long lines at gas stations to form. Those events caused many consumers to consider -- for the first time -- a Japanese-made vehicle, which were smaller and more fuel efficient than those Detroit sold. As a result, consumers discovered that somewhere along the line Japanese vehicles had actually gotten pretty good.
The fact is that public perceptions can lag reality. Often by years; even decades.
This has been a source of frustration for the Detroit auto industry. Consider the recent spectacle of US Congressional committee members berating the automaker CEOs for not building vehicles that consumers wanted to buy.
This reputation was true enough in the Seventies and Eighties. (For reasons not entirely of their own making, as I have argued here.) But today? The vehicles offered by the Detroit automakers are more than competitive.
Perhaps it is ironic that rising fuel prices are again pushing demand to Japanese vehicles, as many consumers still believe these to be more efficient. But this time, the earthquake and tsunami means the supply of vehicles may be slim and prices high.
Some of these shoppers will look for alternatives and will likely find them in the form vehicles they might not have otherwise considered. (Such as the Ford Fusion or Focus, or the Chevy Malibu or Cobalt.)
Indeed this already seems to be the case. Since February the cross shopping between the Toyota Camry and Chevy Malibu increased over 30%. Lifts for the Ford Focus and Chevy Cruze have been even more dramatic.
As this plays out over the next few months, my bet is that many of these shoppers will have to rethink their impressions of Detroit's offerings. In most cases, this reset will be positive.
There is one potential trouble spot. With inventories tight and demand strong, it will be easy for car companies to cut incentives and dealers to rise prices. This is okay--to a point. But prices that climb to quickly can put the whole auto recovery into reverse.
Get the balance right and the Detroit automakers have an opportunity to reintroduce their offerings to potentially skeptical auto shoppers. An opportunity that comes along perhaps once in a generation.