MINI Paceman concept. (MINI)
Going to the North American International Auto Show in Detroit the last two years has been like going to Ford Field for a Detroit Lions game. The expectation is that the home team, struggling for credibility, will surely come up short against the visiting squad -- whether from Japan, Germany or Korea. But this year, with Ford posting a 19% sales increase, General Motors back trading on the public market (and with shares climbing in value), and Chrysler showing off much improved cars and trucks, there is a feeling that the U.S. auto industry is not only contending again, but setting the pace ahead of its Asian rivals.

"I think it's a whole new auto industry," says John Casesa, senior managing director at investment firm Guggenheim Partners. "Ford, GM and Chrysler have been freed up of so much of the burdens of debt and healthcare costs that have dragged on everything they did for so long... Now you can see that they have room to run and compete head to head on practically even footing. It's going to be exciting to watch."

Still Toned Down

Past years have been celebrated with such audacious show-business presentations as a cattle drive down the streets of Detroit, driving trucks through the convention center's plate glass windows, and show displays that looked like interactive video game arcades. However, with General Motors and Chrysler still battling to shed the baggage of their government bailouts, and Ford CEO Alan Mullaly wanting to keep the troops focused on its so-far-so-good recovery strategy, Detroit car companies set the tone for the show with sensible cars and low-profile presentations.

Of course, this might be a little disappointing to the public when they swarm the floor of the biggest American auto show this weekend. While NAIAS seems to have recovered from a two-year slump, 2011 will not be remembered as a year of imagination-tickling concept cars, slick sports cars, or pomp and bombast. There are a few pieces of eye-candy, to be sure, but the most obvious theme, if the automakers are correct in their planning, is that America is going to drive smaller in the coming years. Even if buyers don't want the cars, they will be getting them, as car companies have to produce vehicles with better fuel economy in order to meet toughening government standards.

You know it's an odd year at the Detroit show when Korean carmaker Kia probably has the biggest concept, a design pointing to a possible future minivan. On the other hand, Buick introduced the Verano compact sedan, which will be the smallest Buick offering in two decades. Chevy is showing off its new sub-compact, called the Sonic, that replaces the Aveo. Honda touted its ninth generation of Civic, which will roll into showrooms later this year. Toyota unveiled two derivatives of the popular Prius hybrid, one smaller and one slightly bigger. Fiat has a display for its new tiny 500 mini-car that will be introduced this year.

Auto industry executives were talking up smaller vehicles at every turn. Ford should have a new small Lincoln based on the same engineering platform as the Ford Focus by next year's show. Chrysler CEO Sergio Marchionne says the company will eliminate one of its two minivan offerings and introduce a smaller "micro-van," entering a category now occupied solely by Mazda's Mazda5, and soon contested by Ford with its new-to-the-U.S. C-Max. "America will always like its big cars and trucks, but we are also going to see a lot of the showroom look more like showrooms in Europe to deal with fuel economy," says Ford chief of marketing James Farley.

Hyundai, one of the fastest growing brands in the U.S., has a goal of offering a showroom with an average fuel economy of 35 mpg by 2016 and 50 mpg by 2025. It showed two small vehicles that should help it get there: Veloster, a three-door small car it hopes will challenge the Ford Fiesta and Honda Fit in the sub-compact market, and a concept car called the Curb, a small crossover design that its designer calls "urban tough."

Will U.S. buyers flock to all these smaller offerings? "A lot depends on gas prices," says Jim Hall, an auto industry consultant. "Gas prices are close to $4.00 in California already. If they get there nationally, buying habits change... we have seen this before."

Indeed, Ford executives say they have planned their product offerings in the next five years around the idea of gas prices being above $4.00 a gallon in much of the country.

Pushing Their Strengths

But not all of the show fits in smaller packages. Chrysler is showing a new design of its 300 sedan. More shapely and perhaps a little less cartoonish than the original that proved so popular with the hip-hop set when it came out, Chrysler will push the 300 this year as a legitimate alternative to more expensive luxury cars. Olivier Francois, CEO of the Chrysler brand, says the essence of the new car will be reflected in marketing: "The pride of a hard worker and the class of a gentleman."

The Germans are at the show with both big and small. Audi has an all-new A6 sedan, which was a winner of this year's Eyes on Design award. Volkswagen is debuting its new midsize Passat, which is larger than the outgoing model, while being less expensive. It will be built at the company's new Tennessee plant, and is a lynchpin in the company's outsized plan of selling 800,000 Volkswagens a year in the U.S. by 2018.

Mercedes-Benz is seeming to cover all sides of the market at this year's show. It unveiled the newest C-Class sedan, what some would call its most basic car, which starts at $34,865. But it also showed the $74,875 CLS luxury coupe and the $185,750, gull-wing SLS supercar, which certainly reminds us of the glamour of 1950s auto shows.

For BMW, it was a year of road candy at the auto show. The all new 1 Series M Coupe, a $47,010, limited-volume sportswear, shared the stage with a new 6 Series convertible. The 650i starts at $91,375, and while not the most affordable open-air BMW ever, will certainly make summer drives more enjoyable for owners.

Recovering Profits

Automakers were stunned when total North American sales plummeted from 16.1 million in 2007 to 10.4 million in 2009. The steep and sudden drop drove GM and Chrysler into bankruptcy, and caused every other automaker to hit a giant reset button on its operations, chopping employee headcount and chasing every piece of waste they could find.

This year, sales are expected to be back to about 13 million, and companies, having cut to the bone, are expected to be wildly profitable -- a situation that has driven up the stock prices of several automakers and parts companies.

The better outlook has made this year's show in Detroit a much happier, if not celebratory, atmosphere. With a few exceptions, this is year of practicality, fuel economy and talk about whether electric cars will catch on or not. It will probably take another year of solid profitability before car companies think about staging cattle drives and circus acts to introduce their new wares.

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