Friday, October 5, 2012

Family feud: Detroit tries to win mid-size sedan battle

Family feud: Detroit tries to win mid-size sedan battle

Two new 2013 Honda Accord's are prepped and inspected at Sport Honda in Silver Spring, Maryland. U.S. automakers have consistently fallen behind in the midsize family sedans segment to competition such as the Accord and Toyota's Camry since the mid-1990s.

The recovery of Detroit's automakers is about to face its stiffest challenge yet on an unlikely battlefield: The sizzling market for midsize family sedans, as General Motors and Ford square off against Japanese, Korean and German rivals.
But the two vehicles face an uphill fight against the three market leaders -- the Toyota Camry, Honda Accord and Nissan Altima -- all of which are new or recently redesigned. Add in the latest offerings of the Hyundai Sonata, Volkswagen Passat and Chrysler's existing 200 and Dodge Avenger cars, and the market is as crowded as it has ever been.

The U.S. automakers have consistently fallen short in this sector for nearly two decades, trailing Toyota and Honda since the mid-1990s, but it is now essential that they recover some of that lost share as the segment is becoming more important.

Sales of midsize family cars are up 23 percent through August this year versus 15 percent for the whole industry -- partly a reflection of newer, edgier designs with better fuel economy, more premium features and fresh technology.

A lot is at stake. Detroit's Big Three may have recovered since the financial crisis thanks to government bailouts and generous loans, but they are still struggling to find a path to sustainable growth.

"Now it's absolutely critical" for Detroit to be successful in the midsize segment, says Patrick Archambault, auto analyst with Goldman Sachs. "If you don't have a viable product in that segment, you're screwed in the longer term."

Their recent record has been mixed. GM and Chrysler have returned from near-death to profitability, and Ford has resumed paying dividends. But GM's stock continues to languish -- it closed at $24.42 on Thursday, down 26 percent from its 2010 IPO price of $33, while Ford is down 37 percent in the same period.
"Everyone has upped their game" in midsize family sedans, observes Jim Farley, a former Toyota sales executive who is now Ford's global marketing chief. Farley says the Detroit brands "are more competitive than they have been" in midsize cars -- "but so is everyone."

Detroit has a chance to regain some lost ground but the competition has become much more ferocious, says Michael Robinet, managing director of IHS Automotive Consulting in Novi, Michigan. "The companies with the most at stake are the Japanese," says Robinet.

He notes that the U.S., German and Korean brands "all are raising their game substantially in this segment," while traditional midsize stalwarts Toyota and Honda "have the most to lose and the most to defend."

The best American hope may be the 2013 Ford Fusion, which will reach showrooms in mid-October.

Models like the Fusion "have significantly narrowed the gap" with the best Japanese-branded midsize cars for performance, features, quality and appeal, says Jeff Schuster, senior vice president of LMC Automotive in Troy, Mich.

It is a radical departure from previous models, inspired by the smaller European-designed Fiesta and Focus. The new Fusion will share its basic underpinnings and much of its crisply styled sheet metal with the new European Mondeo, which debuts later this month at the Paris Auto Show.

The Fusion will sport advanced technology, from Ford's acclaimed Ecoboost turbocharged direct-injection engine to the much-maligned MyFord Touch infotainment system. The Fusion Hybrid will also deliver up to 47 miles per gallon.

"Among the domestics, the new Fusion is probably the most important car in the segment," says consultant Maryann Keller, president of Maryann Keller Associates in Greenwich, Conn.

The latest edition of the Honda Accord presents the toughest challenge for the Fusion. The ninth-generation Accord hit dealer lots in early September just ahead of the nameplate's 30th anniversary as the first Japanese car to be built in the United States.

The 2013 Accord, while it doesn't appear to stray too far stylistically from its predecessor, "has a very strong competitive edge," says Tetsuo Iwamura, chief executive of Honda North America. "There is no compromise at all. It has class-leading fuel economy (and) it's very much fun to drive."

The midsize market, which could account for about 3.3 million sales this year, is beginning to look dichotomous, analysts say, which could favor the European-flavored Fusion over the more conservatively styled Accord.

"There are two different (types of) buyers in the segment now," says Schuster. "There is still a market for the conservative, traditional midsize vehicle and one that is more progressive, more focused on design than (just) on dependability and reliability."

Farley says Ford is targeting an emerging group of buyers — the U.S. automaker labels them "Generation Flux" — who are not Toyota or Honda loyalists, but fluctuate among brands. "They're not just on autopilot," he says.
Both the Fusion and the Accord must battle the popular Toyota Camry, which was redesigned a year ago and has been the top-selling passenger car in the United States for 14 of the past 15 years (Accord was No. 1 in 2001). So far this year, the Camry is running away from the pack, steadily widening its lead over the Accord and the Altima.

The Camry's redesign a year ago was seen as a deliberate, albeit modest step away from the stodgy image Toyota has carefully cultivated since the nameplate's launch in 1983.

Toyota benefits from "a large number of buyers on the road who trust in Toyota and trust in the nameplate Camry -- that's a huge advantage going in," says Jim Lentz, president and CEO of Toyota Motor Sales, U.S.A. But the automaker also has attracted younger buyers with its redesigned Camry; the average age in the past year has dropped to 52 from 60, according to Lentz.

Family buyers "want more emotion from their cars, whether it's exterior styling, sophistication of interior, in terms of design and materials (or) driving dynamics," adds Lentz, who says those trends likely will accelerate in the future as Gen Y consumers mature and enter the segment.

Pricing in the sector is competitive and doesn't seem to be a differentiator. The top six sellers have base prices that range from $21,670 to $23,150. Depending on trim level and options, the sticker easily can exceed $30,000.

When vehicle shortages caused by last year's earthquake off the Japanese coast forced Toyota and Honda owners to look elsewhere, one of the beneficiaries was the Altima, which finished 2011 in second place behind the Camry and so far this year is jockeying with the Accord for the No. 2 slot. The redesigned Altima now offers a frugal four-cylinder engine that runs at 38 miles per gallon on the highway.

The Fusion and the Malibu currently remain a distant fourth and fifth, respectively, in the midsize segment through the first eight months of the year.

GM's new Malibu has some initial handicaps. It isn't very different from its predecessor and Chevy dealers have been hampered because the only 2013 Malibu they had to sell until this fall was the Malibu Eco, whose $26,095 base sticker is higher than that of many competitors, while highway mileage of 37 miles per gallon trails similar hybrids. Lower-priced gasoline versions of the Malibu are only now going on sale.

Beyond the top five are the Sonata, which was restyled and upgraded in model year 2011, and the Passat, which received a complete redesign last year and is being produced not in Europe, as before, but at a new $1 billion plant in Chattanooga, Tenn. — moves that enabled VW to shave thousands off the sticker price.

And Chrysler can't be forgotten. Its takeover by Italian automaker Fiat SpA could help lift the U.S. company's game in midsize cars, where it has never been a significant player. But a brand-new Chrysler 200, based on a Fiat platform from Europe, is not due to arrive until early 2014.

"You've really got to put your best foot forward in this segment if you're going to be a winner," says Brian Carolin, senior vice president of sales and marketing at Nissan North America.

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