Automakers scramble to offer more fuel efficiency

TRAVERSE CITY, Mich Thu Aug 14, 2008 4:17am EDT

Chevrolet pickup trucks and SUVs are seen at a dealership in Silver Spring, Maryland, July 1, 2008. REUTERS/Yuri Gripas

Chevrolet pickup trucks and SUVs are seen at a dealership in Silver Spring, Maryland, July 1, 2008.

Credit: Reuters/Yuri Gripas

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TRAVERSE CITY, Mich (Reuters) - Chrysler LLC on Wednesday outlined plans to launch a new car-based SUV modeled after the Jeep Cherokee, as other major automakers took the spotlight at an industry conference to pitch their own hurried responses to the surging demand for more fuel-efficient cars.

A senior Ford Motor Co executive said the No. 2 U.S. automaker expects small car sales to increase sharply and achieve double-digit growth in profit margins on a class of fuel-efficient vehicles U.S. automakers had long neglected in their home market.

"Ford already delivers the best small cars in Europe," said Mark Fields, Ford's president of the Americas, in a speech at the conference in Traverse City, Michigan. "Now it's North America's turn, and we intend to deliver these small cars profitably."

A discussion of the U.S. auto industry's rushed embrace of more fuel-efficient cars, including smaller sedans and electric vehicles, has dominated the annual industry conference, one of the highest profile gatherings of auto executives.

Facing record gas prices and slumping trade-in values for SUVs, Americans in recent months have defected from the light trucks that dominated sales in the world's largest auto market for over a decade.

For the first half of this year, sales of small cars surged by 11 percent, but sales of more profitable SUVs and crossovers, which still account for the largest share of overall sales, fell 14 percent. Sales of pickup trucks were down 23 percent.

Chrysler Vice Chairman and President Tom LaSorda said the automaker is moving ahead with plans to forge alliances, especially in emerging markets even as it invests $1.8 billion to retool a Detroit plant to build a more fuel efficient version of the Cherokee.

"When we look at alliances in different regions, we have had discussions with multiple companies in Russia," LaSorda said on the sidelines of the industry event. "In India we have had discussions with many companies."

HONDA READIES A PRIUS-KILLER

Meanwhile, Honda Motor Co detailed plans for a new five-door, five-passenger dedicated hybrid, set for launch in April 2009, to take on arch-rival Toyota Motor Corp's top-selling Prius hybrid.

"The challenge, especially with small cars, is to bring the price down to where more people can afford it," Colliver told an industry forum in Traverse City, Michigan.

"It will be less expensive, smaller and lighter," Colliver said of the upcoming Honda hybrid, which will be priced below the Prius.

Honda aims to sell 200,000 of the new hybrids globally, with about half of them in North America.

Honda has been rewarded for sticking to a product plan that hinges on smaller vehicles with more fuel-efficient, four-cylinder engines. It is the only major automaker to post a sales increase in the first half, bucking the downtrend with a nearly 5 percent sales advance.

"Small, efficient vehicles are not short-term strategies for Honda. They are part of a fundamental commitment that goes back to Honda's entry into the auto industry in the 1970s," Colliver said.

At the same time, Toyota said it sees an opportunity in the U.S. market as rivals pull back from offering vehicle leases.

Chrysler has stopped writing leases while General Motors Corp and Ford have both been forced to make their financing offers more expensive because of the sharp decline in resale values for big SUVs.

In lease deals, automakers essentially rent vehicles to drivers for a period of several years. The amount of the monthly lease payments hinges on a forecast on what the automakers will be able to sell the vehicles for when the lease expires.

But the plunge in resale values for SUVs and light trucks has forced all of the major automakers to take losses in the most just-ended second quarter.

Even so, Bob Carter, who heads the Toyota division in the United States, said the world's largest automaker is committed to leasing in the U.S. market.

Carter said record high resale values for its fuel-efficient cars and hybrids are offsetting falling values of used trucks.

"As banks leave leasing and other manufacturers leave leasing, perhaps it creates an opportunity for us," Carter told Reuters.

(Additional reporting by Poornima Gupta and Soyoung Kim, editing by Richard Chang)

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