By Warren Brown
Sunday, June 8, 2008

U.S. auto executives are crunching numbers, trying to figure out which trucks to keep and which to junk. Their counterparts in Europe and Asia are reviewing product plans, looking at the possibility that North America might now be hospitable to micro-cars that have long been popular overseas.

The global car industry is topsy-turvy. Fuel conservation is in. Horsepower for the sake of horsepower is out -- at least, for most of us.

It is the world Hummer-haters said they wanted. It is the one for which legions of environmentalists and believers in the corrective powers of regulation lobbied. But here's suggesting that they had little to do with the current situation.

When it comes to change in a capital-intensive industry such as the car business, money talks, and politics walks. And money, particularly the increasingly large amounts spent by consumers on motor fuels, has been talking loudly lately. It has turned into a bully, pushing automobile executives to cancel some products in favor of others.

Here's the deal:

Conventional wisdom about the way automobile companies think and work is wrong. Car companies are not wedded to any given products, not betrothed to any sacred strategies.

General Motors, Ford and Chrysler are not truck companies, as they often have been portrayed in the media. Toyota and Honda are not environmental enterprises.

GM, Ford and Chrysler will make and sell small, fuel-efficient cars if they think they can do so profitably. The proof is that GM and Ford have been doing exactly that for years in foreign markets. One of the best-selling cars in Russia today is the little Ford Focus.

Toyota will sell gas-guzzling trucks, and Honda will sell sport-utility vehicles, whenever and wherever they think they can sell them profitably -- in the United States, for example, where Toyota until recently has been pushing its massive Tundra pickup truck and where Honda until recently has been celebrating strong sales of its Acura MDX and Honda Pilot SUVs.

Toyota and Honda are small-car experts by default, because their home markets, long beset by fuel-supply and pricing woes, have always demanded fuel-efficient models.

They have, therefore, a temporary advantage over GM, Ford and Chrysler in the current market shift from trucks to cars. But "temporary" means just that. Domestic car companies are adjusting to fuel-price-induced changes much more quickly than vehicle sales numbers or media reports indicate.

GM, for example, is dropping the Hummer H2 SUV, just as it jettisoned its original Hummer, the H1, in 2006.

The GM-Hummer relationship was never meant to be permanent. It was a marriage of convenience, sustainable only as long as it remained profitable. GM executives now are examining the prenuptial clause of that agreement, trying to determine whether they should drop Hummer altogether, or keep it with a smaller, more fuel-efficient group of products. What will happen depends on what can be sustained profitably -- and what can be done with the least amount of harm to GM's Cadillac dealers, some of whom have invested millions of dollars to turn their dealerships into Cadillac/Hummer superstores, GM sources said last week.

What is certain is that GM will sell more small cars in the U.S. market, including models obtained from its foreign subsidiaries, such as Opel in Europe, and those built in North America. Ford is employing a similar strategy, pulling in models such as its little Fiesta from overseas and planning to build more fuel-efficient cars at its North American plants. Chrysler, according to Robert Nardelli, the company's chief executive officer, will partner in the development and acquisition of more fuel-efficient cars.

Nardelli offered no specifics on that prospect in a recent interview. But for several months now, Chrysler has been flirting with Nissan with an eye toward procuring more small cars.

It's all about the money -- what consumers are willing to pay for in what markets for what reason. Thanks to high fuel prices, the chance to make money selling small cars in the United States is beginning to look good for a variety of players, including Italy's Fiat Group, which is studying the possibility of manufacturing small cars in the United States beginning in 2010.

None of this means that all big trucks and SUVs will disappear. Many people need trucks. As long as they need them, there will be companies to design, develop, manufacture and sell them, albeit with more fuel-efficient engines and transmissions.

Nor does any of this portend an end to supercars manufactured by companies such as Lamborghini or Ferrari. Remember, money talks. People with lots of money often enjoy speaking loudly. As long as they are willing to do it in a Lamborghini or Ferrari, those companies will be around to serve them.

None of this is rocket science. It isn't philosophical. The car companies will give consumers whatever they are willing to pay for. Right now, the companies are betting that high fuel prices are here for the long term and that many consumers are willing to pay more to get more mileage out of a tank of gas. It's just that simple -- really.