2006 auto show to give peek at Detroit's future

CHICAGO — CHICAGO -- Automakers will pull the curtain on new wares for 2006 and beyond Sunday at the annual Detroit Auto Show, the industry's equivalent of a debutante ball.

When they do, a few trends will be obvious in more than just the hardware. These vehicle introductions also will say a lot about the direction of the industry.


The minicar is making a comeback and the numbers of SUV/wagon "crossovers" will balloon along with gas-electric hybrids.

Yet even the continued uncertainty over the direction of gas prices can't stop the arrival of the redesigned full-size sport utility vehicles on which General Motors Corp. is pinning its return to profitability.


Despite the promise of these new vehicles, most expect 2006 to be a carbon copy of 2005, when the industry sold 17 million cars and light trucks, its third-best year.

"We had a pretty turbulent 2005, yet sales still hovered around 17 million," said Jeff Schuster, North American forecasting director for J.D. Power and Associates. "Regardless of the exterior shock to the market, it seems to weather everything. We don't see any pullback [in sales], but we don't see any gains."

Or smooth sailing, for that matter.

"It's going to be a tough year," said Joe Phillippi, principal of consulting firm AutoTrends. Incentives such as employee pricing cannibalized sales from 2006 and the industry has reached the saturation point, he added, with sales stalled at 16.7 million to 17.2 million the last five years.

That's particularly bad news for struggling GM and Ford Motor Co., who hope new product returns them to profitability.

"They should continue to lose money," said George Peterson, president of AutoPacific, an automotive marketing and consulting firm. "How much depends on how quickly they implement their turnaround plans, but they won't make money until they get their costs down to operate at above break-even levels, and they aren't at that point yet."

In the third quarter, GM reported a $1.6 billion loss, and Ford followed with a $1.2 billion loss from its North American operations, formerly its most profitable unit.

While industry sales increased half a percentage point in 2005, GM's slipped 4 percent and Ford's 5 percent as they continued to lose share. Their major Asian rivals, meanwhile, posted record sales.


Sales were up 4 percent at the Chrysler Group, the U.S. unit of DaimlerChrysler AG. Chrysler also is profitable, reporting a $374 million operating profit in the third quarter.

As a consolation prize for GM, its Chevrolet division passed the Ford division to be the best-selling brand for the first time since 1986.

Though most see industry sales flat in 2006, Ford expects a small decline, noting higher interest rates and energy prices.

"Consumers will have less money to spend on new cars and everything else. Consumer spending drives auto sales, and they'll have less household income," said George Pipas, Ford's sales analyst.

GM is counting on big SUVs like the Chevrolet Tahoe and GMC Yukon as its ticket back to the black. Despite fears about gas prices, most observers feel the SUVs should do well.

"Even though they'll be value priced, they'll still carry hefty profit margins," Phillippi said. "They'll have better fuel economy and should do well. The market will be smaller, but it's still a big market."


And an important one for the domestics.

"We'd be in Chapter 11 if we hadn't made so much money on SUVs in the 1990s," Pipas said of Ford, adding that he expects the segment to soften through the rest of the decade.

If gas prices stabilize, SUV sales will fall slowly, but if they spike to $3 a gallon again sales will take another dive, Pipas said, adding, "It could be whistling past the graveyard to think prices won't spike again."

If the big SUVs don't do well, GM has a problem. "They represent a big bet and are their bread-and-butter vehicles," Phillippi said.

Power's Schuster doesn't see reason for concern. "We don't think the full-size SUV segment will go back to its heyday, but we're looking for an increase," he said.

Full-size SUVs peaked in 2001 at 786,000 units but plunged to 590,000 units in 2005. GM's fell 20 percent in 2005 and Ford's nearly 29 percent.


Power forecasts that sales will rebound to at least 650,000 this year and stay in that neighborhood for the next couple of years, thanks to their core group of buyers. But that amount will not erase billion-dollar losses.

Cars made a comeback in 2005, gaining market share from trucks for the first time since 1981. Industry watchers expect a repeat this year.

Ford's Pipas sees car sales increasing as baby boomers forsake SUVs for cars and crossovers -- SUV-car hybrids are the industry's new hot segment.

Jim Mateja and Rick Popely write for the Chicago Tribune.