Detroit Motor Show flags up car firms' green fears

Motor City's auto fair is pushing a energy-efficient message that US buyers don't seem to want to hear .

By James Quinn, US Business Editor in DetroitPublished: 9:10PM GMT 13 Jan 2010

After the near-deafening house music died down and the fast-paced video disappeared from the overhead plasma screens, Alan Mulally took to the stage to unveil what he believes will be Ford's game-changer in the US car market.
Accompanied by all the glitz and pizzazz one would expect from a new product launch at the North American International Auto Show (NAIAS) , the Ford president and chief executive did his best to argue that the new compact version of the Ford Focus is just what is needed for the American market.

In many ways, it is. A smaller, more efficient car for more austere economic times. The sort of car that even a company like Ford – which managed to avoid tapping the US government for bail-out money when rivals General Motors and Chrysler were taking state aid – could do with in its arsenal ready for the battlefield that will be the car market in 2010.
If only the US market was clamouring for such a car. In spite of the hype surrounding compact cars for the US market at this year's autmotive jamboree, the reality appears to be somewhat different.
Worldwide, 25pc of vehicles sold are what most drivers would class as a "small" or "compact" car. However, in the US, this figure stood at 14pc as recently as five years ago, and even last year, in the worst recession in 70 years, only managed to edge up to 21pc. For Americans, the saloon class of car remains the most dominant by a considerable way.
"A compact car is a logical move from a global perspective," says industry veteran Jim Hall, managing director of motor industry analysis firm 2953 Analytics, "and you have the by-product [in GM and Chrysler's case] that it will please the government."
But in reality, Mr Hall argues, these manufacturers are perhaps fooling themselves, as outside of major urban centres like Manhattan, Boston and San Francisco, there is little actual demand for compact cars, especially with petrol prices back at the $3-a-gallon mark compared to the $4-plus peak in the summer of 2008 when oil topped out at $147-a-barrel.
Part of the need for smaller cars stems from new environmental standards, with cars expected to be able to return 35.5 miles per gallon by 2016 under new US guidelines. However, Mr Hall believes that these guidelines will simply force the manufacturers to further develop the sedan class, in response to consumer demand, rather than force consumers to accept smaller vehicles.
Michael Robinet, of automotive market forecaster CSM Worldwide, attests that these newer, smaller cars such as the Focus and GM's Chevy Cruze are not being aimed at families who currently have gas-guzzling 4X4's, but rather at a "younger demographic". He argues such compacts are symptomatic of a "generational shift" in attitudes when it comes to the American car buying public, one that will take time to take hold.
But it would seem such a shift is also needed when it comes to the green 'revolution' heavily on display in Detroit's Cobo Hall this week.
The NAIAS includes a 35,000 sq ft display entitled "Electric Avenue" designed to show off the latest in non-petrol-powered technology.
And in this instance it is not just the US manufacturers who are trying to pitch hard to the domestic market
From Nissan's fully electric Leaf – which contains 48 individual lithium-ion battery packs and takes 12 hours to charge for a 100-mile drive – to Daimler's battery-driven Smart car, the need for green is everywhere.
But again the sales statistics don't seem to match up to the hype. After almost 10 years of hybrid vehicles being available in America, only 2.8pc of US cars are hybrids. This is in part because of price. A basic Toyota Prius sells for approximately $24,000, several thousand dollars more than an average saloon.
And GM's electric-powered Chevy Volt – on sale later this year in the US – is estimated by analysts to likely cost more than $30,000, even after a $7,500-per-car green technology rebate from the US government.
For the few members of the public granted special access to attend the motor show on its first two days – reserved for the media – the idea of a non-petrol-propelled car didn't seem overly appealing.
"They're lovely," said Diana, from Virginia, gazing at the latest updated Prius range, "but I've got my 10-year-old SUV (sports utility vehicle) and I'm happy with it."
"I'd be worried about constantly having to recharge it. What happens when you don't have the time?" said John, a dealer from Michigan, stood next to a Chevy Volt.
But even if consumers do buy into the smaller and greener concepts being exhibited, it will come to nothing if the US car market does not return to form. Some 10.5m cars were sold in the US last year, the industry's worst annual performance since 1982.
Forecasts for the current year vary widely, not least because of the uncertainty as to the impact the slow economic recovery will have on sales and whether the Obama administration's successful cash-for-clunkers programme last year worked too well in bringing car sales forward.
Anthony Pratt, senior manager of PricewaterhouseCoopers' Autofacts group in Detroit, points to a likely sales figure of 11.4m units in the US this year, cautioning that a return to the boom years seen earlier in the decade are unlikely.
"This year it's all about recovery," he said. "Among the auto companies…there seems to be a sense of relief that they're through 2009."
Ford is forecasting a range of somewhere between 11.5m-12.5m cars sold in the US, while GM has plumped for a more conservative 11m-12m.
But is it a false dawn? Mr Hall thinks so: "This will be a year of two halves for the US auto industry. The first half, and the second."
The second, he contests, is when the second dip of what he believes will be a double-dip recession – led by continued problems in America's heavily indebted commercial property market – will kick in. He thinks the total sales figure for this year will be closer to 10.9m.
The other worry for the US manufacturers is the knock-on effect of the rest of the world, with Europe the greatest concern. Nick Reilly, GM's recently appointed European chief, forecasts that car sales in Western Europe this year could be 1m-1.5m below the 15m of 2009, warning 2010 will be "pretty anaemic" for the car industry." It will be a battle," he predicts.
If so, and if Europe is hurting as the US returns to form, or worse, as Mr Hall would argue, Europe is hurting and the US is too, 2010 may not be the crossroads Motor City's manufacturers are hoping it will be