4 Myths From the Detroit Auto Show

Journalists view the Chinese BYD e6 electric car introduced during a press preview at the North American International Auto Show.

There's less hype than usual, but it wouldn't be America's s signature car show without a generous helping of hyperbole.

The North American International Auto Show, a January ritual in Detroit, is traditionally awash in "concept cars" and other fanciful experiments that represent automotive wishful thinking. Some eventually get built, while others drift into oblivion as budgets shrink, priorities change, or reality intervenes.

This year, auto execs would rather talk about practicality and thriftiness than horsepower and engine size. Or not talk at all: Nissan, Infiniti, and a few smaller automakers didn't even show up, citing the need to conserve cash. General Motors and Chrysler, fresh recipients of billions in federal aid and a smackdown on their corporate jets, are on their best behavior, eager to prove that nary a dollar of taxpayer funds will be wasted. Even the healthiest automakers got the memo: Conspicuous consumption doesn't sell. Not for awhile, anyway.

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Yet even humility can be exaggerated, and a number of misperceptions are emerging from this year's Detroit auto show. Some of them:

Electric cars are just around the corner. Every year in Detroit, there's a groupthink buzzword, and this year, it's "electrification." GM, Ford, Chrysler, Toyota, and even a Chinese automaker have announced plans to build a wide variety of "electric" cars that you'll be able to charge by plugging into an outlet at home, like a laptop. But read the find print. Some of these will be battery-powered cars that have no gas engine as a backup, so if you run out of juice you could end up stranded far away from a charge. Most will be so expensive that the builder will eat most of the cost, which means only the most solvent automakers will be able to build them. Others will have limited range or other tradeoffs that will require a totally different way of driving - which most Americans will probably take a pass on.

GM and Toyota are the farthest ahead on electric cars, and they're both issuing lots of caveats (in their own way). Toyota, which just announced a tiny all-electric urban runabout due in 2012, has been reluctant to make lavish claims about electric-car capabilities, instead pointing out the virtues of its long-proven hybrids. GM has placed a huge bet on the Chevrolet Volt, a plug-in that will also have a gas engine, and is due in late 2010. But the expected sticker price of the Volt is creeping up toward a heady $40,000, reflecting the difficulty of building a rechargeable lithium-ion battery that's muscular enough to power a car. "This isn't a chip shot," says Larry Burns, GM's technology chief. He predicts that big-time battery technology might not turn out to be profitable - with a cost that mainstream buyers can afford - until 2020. And very few automakers will sell electric cars while taking a big loss on each.

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Chrysler is resurgent. It would be a great storyline if Detroit's perpetual underdog, which just received an infusion of $4 billion in taxpayer money, were able to show the world that it's on the mend, after nearly running out of cash. And that seems to be precisely what Chrysler wants people to think. “We have 8 [new car] introductions over the next 18 months,” says CEO Bob Nardelli. “That should put to bed the notion that Chrysler is going away.”

It hasn’t. Chrysler, with one of the least-efficient fleets in America, is trying to overcome its profligate past with brand-new plans to build one or more electric vehicles that could debut as early as 2010. But instead of developing the technology in-house, Chrysler would get it from unspecified partners, and its claim is a verbal pledge, not a firm financial commitment. Meanwhile, other Chrysler indicators are terrible. The firm has canceled other new products, leaving even its own dealers guessing about what it will offer in a year or two. And it’s being vague about whether it will reopen its factories on January 19, as promised when the company announced a month-long shutdown in December. There are also rampant rumors of Chinese manufacturers and other low-ball bidders offering to buy small pieces of Chrysler‘s portfolio, carving the company into fragments. “It’s going to be tough for Chrysler to survive,” says one leading industry analyst. The most likely outcome he foresees: “Absorption” by another automaker.

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It will be a banner year for hybrids. After years of dominance, Toyota’s hybrids will finally encounter tough competition in 2009 from some newcomers on display in Detroit, like the Honda Insight and the Ford Fusion and Mercury Milan hybrids. Fans of the technology hope that more offerings in a broader range of prices will help speed widespread acceptance of hybrids. But the expansion of the hybrid market is happening just as gas prices sneak back below $2 per gallon, and anxious consumers are pinching every penny. If there’s any encouraging news for hybrids, it’s that just about every automaker expects gas prices to shoot back up once the economy rebounds, which will make hybrids more appealing.

So the hybrid heyday may be deferred. Yet even if sales are low, there are benefits to selling hybrids. “We think the Fusion hybrid will improve our favorability ratings,” says Mark Fields, head of North American operations for Ford. “It will have that halo effect that Toyota got from the Prius.” Better than nothing.

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There will be a quick and orderly economic recovery. Sales are down across the industry, and virtually all automakers are hoping that “pent-up demand” will create a boomlet once the economy bottoms out and consumers start to feel more confident about their jobs. That’s what normally happens during mild downturns. The problem is, this isn’t a normal downturn, and one of the recurring economic themes over recent months has been the failure of conventional models to predict what’s likely to happen. And there are plenty of reasons to think it could take years for the car industry to rebound: It’s hard for buyers to get loans, household net worth is still in a free-fall, and unemployment is likely to skyrocket in 2009. Maybe such optimism will seem more genuine at the 2010 auto show.

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