Editorial: Caught napping by consumers

Friday, Oct. 7, 2005 | 8:05 a.m.

Ten years after Toyota premiered its Prius as a concept car, and five years after it began selling the hybrid in the United States (Honda was already selling one), General Motors Corp. and the Ford Motor Co. are just beginning to wake up to the realization that their oversized gas guzzlers might not meet sales expectations in the future. They are making a late entry into the hybrid market, but their continuing confidence in the eternal popularity of sport utility vehicles, huge moneymakers since the late 1980s, is not impressing financial analysts.

The two leading SUV makers are already rated as "below investment grade" and Standard & Poors, a credit rating service, is now examining the automotive giants to determine if they shouldn't "downgrade them further into 'junk' status as early as mid-January," according to an Associated Press report. The story provided the reason: "S&P said high gasoline prices appear to be accelerating a move away from sport utility vehicles in the U.S. market."

For too many years GM and Ford, reveling in the immediate profits of their SUV models, were in denial of the long-term picture, which showed world demand for oil surging and supply diminishing. They are awakening from their dreamlike state, but Japanese car companies have been spotted a huge head start in the technology of fuel-efficient vehicles.

Last month, according to The New York Times, Ford's sales of the Explorer, Expedition and Lincoln Navigator, and GM's sales of the Suburban and Tahoe, fell more than 50 percent. As Ford and GM are dependent upon SUV purchases, their overall sales figures dropped 20.3 percent and 24.2 percent respectively.

Conversely, Japanese carmakers, which depend upon sales of smaller, energy-efficient vehicles, last month reported increased sales -- Toyota, 10.3 percent; Honda, 11.7 percent and Nissan, 16.4 percent, the Times reported. The discontinuation of discount deals earlier this year by GM and Ford can account for some of the disparity. But the obvious reason for most of the difference is that consumers are trending away from SUVs and gravitating toward cars that offer better gas mileage.

In January Ford announced it would be introducing new hybrid models, and last month, as its sales figures came into clear vision, it announced it would be producing 250,000 hybrid cars and trucks a year by 2010. GM also announced a hybrid strategy last month, although less ambitious than Ford's. On Monday, however, it also announced a full-speed-ahead strategy on production of redesigned but traditional SUVs.

The reality is that GM and Ford are far behind Japan's automakers in satisfying customer demand for fuel-efficient cars. If they don't catch up in a hurry, they will risk ceding vast market share to Japan in the coming years.