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2005-01-07 11:08

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As the North American International Auto Show gets underway in Detroit, the marketplace is still looking for a spark and faces a host of problems including rising interest rates and high fuel prices.

The show from January 9-23 in the Motor City includes some 60 exhibitors looking to make a splash with concept sportscars, new trucks and sport utility vehicles and a number of new hybrid gasoline-electric vehicles.

The show opens after a lacklustre year, especially for the Big Three US automakers. General Motors experienced a one percent sales drop in 2004 and Ford sales fell 4.4%. Only DaimlerChrysler, which includes the Chrysler Group, saw an increase in sales, of just 3%.

The US automakers, still heavily dependent on price cuts and other incentives, are losing market share rapidly to Asian manufacturers, a trend seen as continuing and possibly worsening with China poised to enter the US market.

New cars

Some of the new cars to be introduced in Detoit include Honda's first pickup truck and a new Subaru sport "crossover" wagon.

GM's will introduce will introduce a roadster called Sky under the Saturn name and present its first hybrid sport utility vehicles.

Ford will be promoting its new sedans including the Ford Fusion and Lincoln Zephyr in an effort to stem sliding sales in that sector.

From Chrysler, on tap will be the Jeep Gladiator, described as a "flexible utility truck," featuring an open-air canvas top, an expandable truck bed and a stow-away rear-seat cushion.

A high powered sportscar called Firepower will also be unveiled.

Morgan Stanley analyst Stephen Girsky said Detroit carmakers enter the year with rising inventories and other problems.

"Our industry view is based on expectations of continued soft retail demand, high inventory, weakening mix, rising raw material prices and decelerating growth in international markets, particularly China," he said.

Americans bought 16.9 million vehicles last year, up from 16.7 million in 2003, after three years of declining sales.

But most of the gains came from Japanese and South Korean makers, and profits for all the carmakers have been squeezed as consumers demanded and got price cuts and free or low-rate financing.

Drop in sales for Big Three

The domestic Big Three's share of the US market slid to an all-time low of 58.7%.

The Japanese Big Three of Toyota, Honda and Nissan posted record sales in 2004 to increase its combined share to 26.3%.

South Korea's Hyundai and its Kia affiliate also had record years.

David Littmann, chief economist at Detroit-based Comerica Bank said 2004 was "a good volume year for the industry" that could be matched in 2005 assuming the overall economy remains on track and energy prices retreat.

But Littmann said automakers, especially the Big Three, have seen profits squeezed because of high labour and pension costs, and the need for price incentives.

"The incentives will continue," he predicted. But analysts look for newer kinds of incentives now that interest rates are rising, making zero percent financing more difficult.

The auto research firm Edmunds.com said the average manufacturer automotive incentive in the United States was $2 512 in December 2004, and shows no sign of abating.

"We are confident that we have not seen the end of generous auto incentives," said Jane Liu, analyst at Edmunds.

"However, unlike the past's traditional cash and financing incentives, the future will likely show us more creative offers," like Volkswagen's new program that covers car insurance for first year.


Analysts point out that top-tier Japanese automakers are less dependent on price cuts and incentives.

Edmunds said that while domestic nameplates included incentives worth $3 420 per vehicle sold in December, it was just $1 781 per vehicle for Korean makers and $1 076 for Japanese autos.

"Honda and Toyota are simply more flexible and (their cars) have a better resale value," said Littmann. "That quality perception is what gives them an increasing market share."

Littmann pointed out that the Japanese are miles ahead of Detroit on hybrid technology.

"The the only hope for the Detroit carmakers is that (hybrid technology) somehow turns into a dead end," and consumers embrace something new, possibly fuel cell cars, that would allow Americans to catch up.

But Littmann noted that while Detroit is looking over its shoulder at Japan, the Japanese carmakers are racing to stay ahead of the Koreans and watching for new low-cost cars from China.

"Asian market share is going to grow, even if out comes out of the hide of Nissan and the other Japanese carmakers," he said.

CLICK HERE for news from the Detroit Motor Show


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