WASHINGTON -- The good news is that big summer discounts helped ailing North American auto makers clear out most of their sport utility vehicles.
The bad news is that their factories are still geared toward cranking out hulking autos that buyers no longer want. September's auto sales figures confirmed the end of a 15-year North American love affair with the SUV. Sales of the oversized autos plunged last month as car buyers reacted to the sudden spike in gasoline prices that followed hurricanes Katrina and Rita.
The challenge now for U.S. auto makers -- most notably Ford Motor Co. and General Motors Corp. -- is to retool for the new market reality: Gas miserly is in and the behemoth is out.
"U.S. companies have never been good at making small cars," said Susan Helper, an auto industry expert and economics professor at Case Western Reserve University in Cleveland. "So it's an adjustment in mindset as well as technology."
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And the industry has to undergo this transformation at a time of extreme financial stress.
One option for Ford and GM is to curtail production of its SUVs, while adding extra shifts at plants that make more fuel-efficient vehicles, such as the Ford Focus or Saturn Ion, Prof. Helper said. And to some extent, that's what they are doing already. Ford has just halted production of the Excursion, the 6-metre-long king of the company's SUV line.
But that isn't a long-term solution, she said. Ultimately, the auto makers will have to revamp their entire marketing mix, and move aggressively into production of more fuel-efficient, but high-margin vehicles. That transformation could take as long as five to 10 years, Prof. Helper warned.
The industry has a long way to go. SUVs, pickups and slightly smaller crossover vehicles make up more than half the North American auto market.
"They can't just move their SUV production to car production overnight," pointed out Peter Morici, a business professor at the University of Maryland in College Park, Md. "It's a geographically dispersed industry."
Production of a model with dwindling popularity might be in Ohio, while the work force for the hot-selling car is hundreds of kilometres away in Alabama.
That doesn't mean North American auto makers can't react to changing consumer tastes and priorities. After all, the industry successfully evolved out of the era of the minivan.
In recent years, auto makers have thrown their technological muscle into making more powerful and efficient engines. Now, the challenge, Prof. Morici, is to turn that brain power into making slightly less muscular, high-efficiency engines.
"It is possible to tweak these engines to deliver less power and more fuel economy," he said.
DaimlerChrysler AG, for example, suffered a less dramatic sales drop than Ford and GM last month, in part because many of its big SUVs and trucks have the more efficient Hemi engine, he said.
Prof. Morici said he isn't convinced Ford and GM will be nimble enough to react to the shifting marketplace.
"Are these guys going to try to advertise their way out of the problem or are they going to fundamentally change the way they do things?" he asked.
GM is busily redesigning its SUVs, but is years behind its rivals in producing hybrid gas and electric vehicles.
Analysts warned that the problems facing the North American auto industry aren't solely the result of soaring gas prices and a reliance on high-margin SUV sales.
There were anomalies in the September sales figures that suggest far deeper problems for companies such as GM and Ford.
Ford, for example, blamed gas prices for tumbling pickup and SUV sales. But the company offered no explanation for a 24-per-cent drop in sales of the highly fuel-efficient Ford Focus.
Meanwhile, Asian and European brands -- sedans and SUVs alike -- continue to gain market share at the expense of domestic brands. SUV sales at Nissan were up in September. SUV sales at Toyota and Honda were down, but not nearly as precipitously as at Ford and GM.
"The market may still be underestimating the implications of deteriorating market share and mix for U.S. auto makers," DeutscheBank analyst Rod Lache said in a report to clients. "U.S. auto makers have limited ability to mitigate these declines through the use of incentives. We do not see the discounting strategy as being a viable option."
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