Car Buyers Spurn GM, Ford as Japan Brands Retain Aura (Update3)
http://www.bloomberg.com/apps/news?pid=20601109&sid=aw1th8uBIqps

 June 22 (Bloomberg) -- U.S. automakers spent much of this decade
retooling their lineups to offer cars rivaling Toyota Motor Corp.’s
Camry and Honda Motor Co.’s Accord. Now comes the challenge of winning
over consumers.

While models such as Ford Motor Co.’s Mercury Sable got top quality
marks today from researcher J.D. Power & Associates, U.S. buyers aren’t
embracing the cars on which Detroit is staking its future. Imports held
69 percent of the U.S. car market through May, 4 points more than a year
earlier.

Ford, General Motors Corp. and Chrysler Group LLC are suffering from
their sins of the past, when they lavished development dollars on trucks
and sport-utility vehicles and let their sedans languish. Building
better cars still hasn’t enabled them to overcome Asian automakers’ aura
of superiority.

“It doesn’t take long to lose your reputation for making reliable cars,
but it takes 10 to 15 years to get that reputation back,” said David
Champion, auto test chief for Consumer Reports magazine, who dubbed
Ford’s Fusion “the best car you don’t know about” in the April issue.

Recovery plans at Ford, Chrysler and Detroit-based GM ride on cars.
Truck sales plunged 25 percent in 2008, more than twice the decline for
cars, to help drag the U.S. automakers to $62.4 billion in losses.

Quality Ratings

Bolstering the automakers’ efforts are car-quality gains as assessed by
companies such as Westlake Village, California-based J.D. Power.

The Mercury Sable grabbed first place among large cars, up from second
in 2008, J.D. Power said, and GM’s Chevrolet Impala was third. GM’s
Pontiac G6 and Chevrolet Malibu ranked among the top three among
mid-sized cars, while the Cadillac CTS trailed only the Lexus IS in the
entry premium car category.

Cadillac finished third among 37 brands, beating Honda in fifth place
and Toyota in seventh. Ford and Chevrolet were eighth and ninth, J.D.
Power said.

The trick is convincing U.S. car buyers who see companies such as Toyota
City, Japan-based Toyota and Honda as the quality standard. Detroit
can’t advertise its way out of the perception that it makes shoddy cars,
said David Martin, president of the New York operations of brand
consultant Interbrand Corp.

“The Japanese have done well because they deliver the goods first before
they start talking about it,” Martin said. “Detroit historically has
believed they can just talk and they can pull the wool over our eyes.
They need some hero products that get you and I talking, and then they
can start advertising.”

Technology Focus

U.S. automakers are responding by deploying technology and fuel
efficiency that they say connote quality.

GM, the biggest U.S. automaker, plans to start selling the Chevrolet
Volt plug-in electric car next year. A redesigned Ford Taurus debuting
this month has pre-collision sensors that boost braking power to help
avoid a crash.

“People have to buy a car and live with it to recognize improvements in
reliability and durability,” said Derrick Kuzak, product development
chief for Dearborn, Michigan-based Ford. “But this is technology with
immediate appeal.”

Marketing mileage is making inroads for Ford. The new Fusion had record
U.S. sales in April and May. The Fusion’s fuel economy is the highest
among mid-size sedans, with the hybrid version getting 41 miles per
gallon in city driving.

Research shows buyers equate high mileage with high quality, Jim Farley,
group vice president of marketing, said in an interview.

‘Driveway Credibility’

Fuel economy “is a proxy for trusting the company,” said Farley,
Toyota’s U.S. marketing chief until joining Ford in 2007. “It gives you
driveway credibility. You can talk to your neighbor and say, ‘This is
why I bought a Fusion,’ and your neighbor would understand.”

Toyota and Tokyo-based Honda built their reputations on the quality and
fuel efficiency of small cars starting in the 1970s.

Ten years ago, Asian automakers’ U.S. market share was 25.8 percent. In
2009, it’s 46.8 percent, compared with 44.7 percent for domestic brands,
according to researcher Autodata Corp. of Woodcliff Lake, New Jersey.
Weaning themselves from the trucks that provided profits in the 1990s,
the U.S. automakers are gearing up to add cars.

GM will reopen a U.S. factory being shut in bankruptcy so it can make
subcompacts, while Chrysler left Chapter 11 allied with Fiat SpA to get
small-car technology.

Ford, alone in shunning a U.S. bailout, is converting four truck plants
to make cars as it prepares to unveil two new small cars in 2010. The
shares fell 34 cents, or 5.9 percent, to $5.38 at 4:15 p.m. in New York
Stock Exchange composite trading.

‘Critical’ Year

“The next 12 months are critical,” Ford’s Farley said. “There are a
group of customers in the U.S. who have goodwill for the company, but
who are still wondering about the trust factor.”

Chrysler faces the biggest hurdle in luring buyers because it has the
lowest quality rankings among U.S. automakers, said John Wolkonowicz, an
auto analyst with IHS Global Insight in Lexington, Massachusetts.

Chrysler, the U.S. automaker most dependent on trucks, is counting on
Fiat to jump-start work on new models stalled as the Auburn Hills,
Michigan-based company slid toward bankruptcy. Technology from Turin,
Italy-based Fiat will be the foundation for six Chrysler models, IHS
Global Insight said on June 11.

Limits of Quality

Sales suggest that GM and Ford’s quality gains aren’t enough to overtake
Toyota and Honda.

The Fusion and Malibu still were outsold by the Camry and Accord by
almost 2-to-1 through May. Setbacks for Toyota such as having the V-6
Camry judged “below average” for reliability by Consumer Reports in 2007
proved short-lived. The model was rated “average” last year.

“It is very hard to open minds and get people to consider a domestic
vehicle again, no matter how good,” GM Vice Chairman Bob Lutz said. “The
product and fuel economy deficit, reliability deficit, styling deficit
-- all those deficits have been erased. What has yet to be erased and is
going to be the biggest challenge of all is erasing the reputational
deficit.”

San Diego biochemist Keith Beatty said the Plymouths and Oldsmobiles he
owned growing up needed frequent repairs and wore out prematurely.
Beatty, a self-described baby boomer who declined to give his age, said
he began buying Hondas and Toyotas more than three decades ago and never
turned back.

‘Detroit Iron’

“I’m driving a 23-year-old, 33-mpg Toyota that runs better than any new
25-mpg Detroit iron,” Beatty said in an e-mail. “I would never in my
lifetime own another Detroit automobile.”

GM stopped making Oldsmobiles in 2004, three years after Chrysler killed
the Plymouth brand.

Toyota and Honda retain a number of advantages. After three years of
ownership, a new Accord should keep 53 percent of its retail value and
Camry should have 47 percent, more than Malibu’s 45 percent and Fusion’s
44 percent, according to Automotive Lease Guide, the industry standard
for used-car prices.

Shoppers’ quality impressions also show GM and Ford coming up short
compared with the findings in the J.D. Power study, based on a 2009
survey for Santa Barbara, California-based ALG.

“There’s a big lag between the actual improvement in how their cars are
screwed together to what consumers perceive as their quality,” ALG
General Manager James Clark said. “It’s frustrating for them. They
wonder, ‘Why don’t people get it?’”

‘Build Better Cars’

At Galpin Motors in Los Angeles, Ford’s biggest-selling retailer, Vice
President Beau Boeckmann said Detroit automakers can’t be content with
just matching Japanese brands.

“Ford has to build better cars than Toyota,” he said. “Why would someone
come into my showroom if they’re perfectly happy with their car? Therein
lays the big challenge.”

Compelling designs are crucial, according to GM’s Lutz, who noted that
members of President Barack Obama’s car task force lingered over a
Cadillac coupe with a 560-horsepower engine on a recent visit to GM’s
design studios.

“It doesn’t get very good gas mileage, but it got a good deal of
attention from the automotive task force,” Lutz said in a May 28 speech
in Detroit. “It doesn’t matter where you work or what you do, normal
people get turned on by great cars.”

Russ Meyer, chief strategy officer for brand consultant Landor, endorsed
that approach.

“Hammering on about quality is less important than getting people to
feel like it’s cool to own an American car,” said Meyer, who is based in
San Francisco. “They’ve got to ramp up their styling. Now is the time to
swing for the fences.”