The Big Picture

“AS RECENTLY AS 1992, THERE WERE BARELY ONE MILLION PRIVATELY OWNED VEHICLES ON CHINA’S ROADS. NOW THERE ARE MORE THAN 40 MILLION. ”

a new beginning

America’s auto industry has changed forever

WHAT A MONTH! As I write this Chrysler lawyers are working on the sale of most of the bankrupt automaker’s assets to Fiat, while GM’s legal team is putting the final touches on what will probably be the third-largest corporate bankruptcy in history. Pontiac is now officially dead. Roger Penske is rumored to be angling to buy Saturn. Almost  dealers have been given pink slips. And President Obama announced a national fuel economy standard that will mandate an average . mpg by .

In little more than  days America’s auto industry has been profoundly changed. Forever.

The Meltdown on Wall Street has played a major role in precipitating the seismic shifts now shuddering through the industry. Forecasters are predicting U.S. sales of cars, pickups and SUVs will total just . million units this year, and  million units in  as cash-strapped consumers stay away from dealer lots. That’s down from . million sales in , a total we’re not likely to approach again until , according to analysts.

North American vehicle production will fall below  million units this year, the lowest total since . That means output will have almost halved in just two years, a decline roughly equivalent to closing  assembly plants in the U.S., Canada, and Mexico. Recovery will be slow; production is forecast to rise to . million units next year and . million units in . As with sales, we’re not likely to see  levels of production until .

But here’s the thing: In , the Detroit Three—assuming Chrysler and GM survive— will be producing at least . million fewer vehicles a year in their North American plants than they did in , while Asian automakers will be building at least . million vehicles a year more. Up until the early s, virtually every vehicle made in North America was made by the Detroit Three. By , Detroit automakers will be lucky to be building  percent of the cars and trucks made in North America.

Until , America’s auto industry looked pretty much the way it had looked for the past  years. What it’s going to look like  months from now is anyone’s guess, but here are some thoughts to ponder:

FIAT NEEDS CHRYSLER ALMOST AS BADLY AS CHRYSLER NEEDS FIAT.

Fiat’s fundamental problem is that it’s a niche automaker. It builds competitive small and compact cars under the Fiat brand and a stylish range of sporty midsize cars under the Alfa Romeo brand. But Fiat has no SUV, and nothing to offer the booming small-crossover segment. It hasn’t built a credible volumeselling car larger than a Ford Focus in decades.

Chrysler gives Fiat instant access to a dealer network in the United States and skin in the SUV and crossover game with Jeep. Chrysler’s new Phoenix V- engine family, which can reportedly be scaled from . to . liters, allows Fiat to ditch the expensive GM-sourced V- powering many of its Alfa Romeo models. A Sebring replacement built on the Alfa Romeo “premium” platform will bring significant economies of scale to another major chunk of hardware.

CHINA HOLDS THE KEY TO GM’S FUTURE.

China, which by some reports now has more than , U.S. dollar millionaires, has gone from cycle tracks to superhighways in little more than  years. As recently as , there were barely one million privately owned vehicles on China’s roads; now there are more than  million. This year, new vehicle sales are expected to top  million units, pushing China past the U.S. as the world’s largest auto market.

GM plans to double its sales in China over the next five years, to two million units. If that happens, by  GM’s China sales will be roughly two-thirds U.S. levels. In , GM sold . million vehicles, spread across eight brands, but by  it plans to have just four brands: Chevrolet, GMC, Buick, and Cadillac. In , those four brands accounted for just . million vehicles. Growth in China will recover volume lost with the closure or sale of Pontiac, Saturn, Saab, and Hummer.

THE AUTOMAKERS ALL SIGNED UP FOR 35.5 MPG BY 2016.

The new national fuel economy standard will require new, more complex, more efficient powertrains—direct-injection turbocharged gas engines, diesels, hybrids, electric vehicles—and increased use of more costly lightweight materials. It will change the types of vehicles we buy.

But as Todd Lassa explains (“Trend,” page ) the new .-mpg average fuel economy mandate does not mean the end of the road for performance cars, pickups, or SUVs. Automakers are on board with the new standard because they now have planning certainty; they can get their best and brightest engineers working on ways of meeting the target without states like California threatening to add cost and complexity by enacting unique CO emissions limits.

The end of the road for the American auto industry? I don’t believe that for a moment. We humans are an imaginative and inventive bunch. I think we’re about to see a new beginning. ■

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what we’ve been up to...

TOP DOWN: Flyboy St. Antoine promises to not toss cookies at high g. MT, Blue Angels—the color of freedom. Markus steps out on ’bot legs. Mom and Dad welcome new car guy Julian Isamu Kiino. One Lap crew on the road.

Th e Hyundai Genesis—2009 North American Car of the Year.