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Seduced by the Siren of Globalization

Jerry Flint
Tuesday, March 6, 2007

Backseat Driver

No doubt about it: Going global is Detroit's latest cure du jour.

At the Chicago auto show, General Motors (nyse: GM - news - people ) showed a near-ready version of the Pontiac G8 sedan, which should be on sale early next year. The G8 is a rear driver with a V-6 or a stronger 362-horsepower V-8. Maybe you remember the old Pontiac slogan: "We build excitement."

The only problem is that GM is not building the excitement in Pontiac, Mich. Instead, GM's Australian affiliate, Holden, will manufacture the sedan and ship it to the U.S.

GM also previewed the Saturn Astra, which is a slightly modified small car from Opel, the German unit of the company. The plan is to build this car in a GM plant in Belgium and import it to the U.S. I have heard that GM may eventually build the Astra in this country.

Ford Motor's (nyse: F - news - people ) executives have been talking about building European models for Americans. Among the mentioned contenders are the midsize European Mondeo cars and a small commercial van.

Nothing is going to stop this trend, especially at GM. For the most part, GM will design and engineer its future passenger cars in Europe or other foreign countries, and then build them in North America, with only modest changes.

One such example is the next Saturn Vue sport utility vehicle, which is a version of a German model. GM will build its new Vue in Mexico. Whatever happened to the promise that Saturn would be a new kind of American car company?

The idea of global models is simple enough: save money and time. The only problem is that it has not worked for Detroit in the past.

No Australian-built car has ever been a success in the U.S. In 1990, Ford's Mercury division brought over a little Australian roadster called the Capri, the ugliest two-seater I had ever seen. The Mitsubishi (other-otc: MSBHY - news - people ) Diamante sedan of a few years ago was another sales dud, as was a GM Aussie car they called the Pontiac GTO. The problem with Australian cars is that they look dated. Even the G8 that GM showed was not as stylish as a Pontiac should be.

The Detroit companies have had a long stream of disasters bringing their European cars to this market. One year, back in the early 1960s, Ford sold 100,000 copies of a British model, the Cortina. U.S. customers quickly found out how awful it was and it faded away. Ford also struck out in the 1980s trying to sell German Fords as Mercury Merkur models. GM has had similar flops, such as the German-built Cadillac Catera and the Saturn LS, an Opel sedan that it covered in plastic panels and built in the U.S.

Americans seem to love their Porsches, Mercedes, BMWs and other European cars, so why have GM and Ford had nothing but failures here for the past half-century?

I think that there are a few reasons for this. Up to this point, European designs from GM and Ford have been rather dull and generally do not appeal to Americans. Europeans are smaller than we are in height and weight and fuel is more expensive in Europe. As a result, many European small cars seem a bit tight for us.

Market positioning is another challenge. A small American car, say the size of a Ford Focus, is a blue-collar entry-level car in the U.S. In Europe, a car of that size is for the middle class, so manufacturers use higher-priced designs and components and put more features in such models.

Such a car might cost as much as $30,000 in Europe, but no one would pay that much for a Ford of that size here. The Euro conversion rate also makes it impractical to import lower-priced, high-volume models. Just look at Volkswagen, which has been losing $1 billion a year in the U.S.

OK, I will concede that GM's new global cars might do better than the old ones. The Saturn Aura on sale now, a version of a German model, is better looking than any previous Saturn model. The next generation Chevy Malibu, coming this fall, also shares this European platform, and is more attractive than any versions of the Malibu since GM revived that nameplate for model year 2000.

That aside, globalization is fraught with problems. Here are a few passages from a letter sent to me a while ago by a Detroit executive:

"The difficulty in reconciling different market tastes, different tooling suppliers, different plant layouts, different manufacturing technology, the way doors, for instance, are hemmed, different safety requirements, etc., make the coordination and engineering job so complex and difficult that the supposed savings of engineering it only once are swamped with the additional, needless travel, communications, meetings, compromises and, above all, lost time. ...

"There is, further, a trend toward tailoring automotive products to specific markets. Even Toyota has recently begun to understand that regional product creation, using engineers and key suppliers in that region, designing vehicles for that regional market, is a more effective (i.e., better product at low cost and investment) method then a globally directed one-size fits all' strategy & "

For the past few years, GM has been working to create one engineering and manufacturing system for all its plants around the world to solve just these problems.

Maybe this plan will work this time. It won't be the easy road some expect.