Detroit's New Focus on Small Cars and Quality Pays Off

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Ford focusNot long ago, each time gas prices shot up and car buyers turned their attention to more fuel-efficient models, Ford (F) and the other Detroit automakers would get hammered.

Their strengths were in SUVs, big cars, and pickups -- in other words, gas-hogs. Buyers wanting good mpg numbers tended to look to the imports -- enough to make Toyota's (TM) Corolla and Honda's (HMC) Civic perennial best-sellers.

Meanwhile, the Detroit crew got by with small cars that weren't very good (or profitable). Although good enough to be sold cheap to rental-car companies, they didn't sell well to consumers -- and when they did, it was mostly because they were priced right.

Oh, how times have changed. And they've changed in a big way.

A Focus on Great Compact Cars

Sales figures back up the fact that drivers are shifting to smaller cars and SUVs. But this time, those sales figures don't come with horror stories about losses and layoffs in Detroit.

Instead, we're hearing stories like the one Ford's PR folks were proud to tell on Wednesday: Ford's sales in January were paced by a whopping 60% year-over-year gain for the automaker's compact Focus.

Now, to be fair, the current Focus was introduced last spring -- that comparison is with sales for the old car. And while the old car wasn't bad, exactly, the new one is superb. Engineered by Ford's small-car experts in Germany, and lavished with development resources and advanced technology, the latest Focus is a huge leap forward.

I can attest to this personally, as my wife and I bought one a few months back. It's a great car, quiet and tight, with a surprisingly luxurious interior. And it gets more than 30 miles to the gallon, week in and week out.

It's definitely not a typical Detroit compact of old – in fact, we liked it quite a bit better than the current contenders from the import brands. And given how the Focus's sales figures have shown, we aren't the only buyers who have noticed.

But It's Not Just the Focus (and It's Not Just Ford)

Ford's smallest SUV, the Escape, is also enjoying record sales -- up nearly 24% over (strong) year-ago totals, its best January ever. What's interesting is that unlike the new Focus, the Escape is an older model, set to be replaced in just a few months. But lots of buyers are still choosing it over Toyota's RAV4 and Honda's CR-V.

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Ford isn't the only company that's onto something with its recent designs. General Motors (GM) is having success with its own compact, the Chevy Cruze. Introduced just over a year ago, the Cruze has found fans all over the world. For a while last year, it was the best-selling compact in the U.S.

Of course, that was while Toyota and Honda were having trouble producing their entries, as they struggled with parts shortages in the wake of the Japanese earthquake and tsunami last March. But Toyota has largely recovered, with sales up 7% in January -- and the Cruze still managed to post a sales gain of more than 10% on the month, while Corolla sales were actually down.

Detroit Is Back, and Its Small Cars Are Better Than Ever

Toyota's not going anywhere, of course. In most every corner of the market, it remains Detroit's fiercest competitor. Despite its troubles in recent years, Toyota still has a large and loyal following. But Ford has nearly caught up. With its wall-to-wall lineup of excellent cars and trucks, Ford is well-positioned for any shift in the market -- for the first time in a very long time. And more and more buyers are catching on.

And GM? GM's product revival is a few years behind Ford's, a legacy of its collapse and bankruptcy a few years back. And it still has some hard feelings to contend with, thanks to the government bailout that gave it a new lease on life. But its best new products are very good, and the company shows every sign of building on that momentum in coming months.

Long story short: if you're shopping for a new car, be sure to give Detroit's offerings a try. You might be very pleasantly surprised.

At the time of publication, Motley Fool contributor John Rosevear owned shares of Ford and General Motors. You can follow his auto-related musings on Twitter, where he goes by @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors, as well as creating a synthetic long position in Ford.

12 PHOTOS
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Detroit's New Focus on Small Cars and Quality Pays Off

2010 New Retail Price: $34,137
2011 Used Retail Price: $20,120
Depreciation: 41.1%
J.D. Power Predicted Reliability Score: 3.5/5

When Chrysler introduced its brand new 300 line in 2005, it met with much success. The 300C was awarded Motor Trend Car of the Year. The vehicle sold extremely well -- nearly 145,000 units in the first year, and 120,000 in the second. Since then, however, sales of the full-size sedan have dropped heavily as other vehicles, including the new Buick Lucerne, the Ford Taurus, and the Ford Fusion, have gained ground in the market. The 2010 version of the 300 posted a record-low 37,116 units sold. According to Edmunds, many of its features, including its four-speed automatic transmission, have become outdated. In response to flagging sales, Chrysler introduced a completely overhauled 2011 edition of the vehicle.

2010 New Retail Price: $36,087
2011 Used Retail Price: $24,979
Depreciation: 30.8%
J.D. Power Predicted Reliability Score: 4/5

From the late 1990s through 2000, a series of horrible vehicle rollovers due to tire tread separation led to the recall of thousands of Firestone tires on Ford Explorers. While Ford and Firestone blamed each other for the debacle, the brand value of the full-size SUV has never been the same. Ford continued the line in several generations, with new versions being introduced in 2002, 2006 and 2011. With the release of the "fifth generation" Explorer this year, last year's model  lost a significant portion of its value -- more than $11,000 in a single year.

2010 New Retail Price: $32,073
2011 Used Retail Price: $22,147
Depreciation: 30.9%
J.D. Power Predicted Reliability Score: 4.5/5

Ford's flagship muscle car had a major successful redesign in 2005. In that first year, the fifth-generation Mustang sold 160,000 units and more than 166,000 units the next. Those numbers began to dwindle toward the end of the decade, and the 2010 version sold less than 75,000 units. In an attempt to boost sales, Ford included so many upgrades to the engine, transmission, and other components, that it could almost be considered a new generation of Mustang. The 2011 version has won a series of awards, including making Car and Driver's Ten Best list. This has, of course, left the 2010 version in the dust, and while that year's Mustang received excellent reviews from both Consumer Reports and J.D. Power, it lost more than 30% of its value in the past year.

2010 New Retail Price: $63,605
2011 Used Retail Price:$43,799
Depreciation: 31.1%
J.D. Power Predicted Reliability Score: 3.5/5

The QX is Infiniti's full-size luxury SUV. The first generation ran from 1997 to 2003. A much larger version, built on the platform of a Nissan Titan pickup truck, arrived in 2004. It's one of the most expensive full-size SUVs on the market, but that model received poor reviews from J.D. Power, which gave it a 2.5 out of 5 for initial quality and  overall performance. Horrible sales led in part to a complete redesign, and to better sales. The 2011 version sold 27.1% better this June than last, when it moved a measly 658 units, according toMotor Trend. But the resale value of the 2010 QX65 has dropped by nearly $20,000 in a single year -- the equivalent in value to a brand new 2012 Nissan Altima.

2010 New Retail Price: $51,360
2011 Used Retail Price: $35,220
Depreciation: 31.4%
J.D. Power Predicted Reliability Score: 4/5

The Cadillac STS suffered the same fate as the DTS in 2011: The line was discontinued after consistently poor sales. In 2010, the STS sold just 4,473 units, down 29,000 units, or 86% from 2005. The 2010 version of the full-size luxury car lost more than 31% of its value in a single year. Cadillac next attempt to crack the full-size luxury market will come when it introduces the XLS in 2012.

2010 New Retail Price: $31,057
2011 Used Retail Price: $21,095
Depreciation: 32.1%
J.D. Power Predicted Reliability Score: 3.5/5

The E-series wagon, Ford's popular line of full-size vans for passengers and freight, reached its 50th anniversary in 2011, which prompted a special edition of the van, including a variety of new accessories such as a built-in navigation system and HD radio. The 2010 version of the vehicle, while part of the same generation, has nevertheless lost nearly a third of its resale value. The 2010 version of the van also received poor reliability scores from J.D. Power.

2010 New Retail Price: $22,183
2011 Used Retail Price: $15,056
Depreciation: 33.2%
J.D. Power Predicted Reliability Score: 4/5

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2010 New Retail Price: $23,183
2011 Used Retail Price: $14,641
Depreciation: 36.8%
J.D. Power Predicted Reliability Score: 2.5/5

The 2010 Kia Optima is part of the second generation of the Hyundai-owned automaker's line of mid-size sedans. With only average or below-average performance and reliability scores from Edmunds and J.D. Power, the car had difficulty competing with incredibly popular mid-size  vehicles as the Camry, Accord, and Civic. The 2010 version turned out to be the last of its generation, and the introduction of the completely revamped Optima in 2011 -- and a hybrid version -- caused the value of the one-year old vehicles to plummet.

2010 New Retail Price: $29,652
2011 Used Retail Price: $18,544
Depreciation: 37.5%
J.D. Power Predicted Reliability Score: 3/5

Dodge's legendary muscle car has seen many changes over the past half-century. The most recent generation, which ran from 2005 to 2010, sold moderately well but received horrible marks from Consumer Reports and other reviewers. The magazine gave the latest version of the vehicle a 2.5 out of 5 for initial quality, and 3 out of 5's for overall performance, design, and reliability. In 2011, Dodge introduced a new generation of the vehicle. According to Edmunds, the redesign features "a long list of improvements," including modified taillights, a new dashboard, and a sleeker body design.

2010 New Retail Price: $34,137
2011 Used Retail Price: $20,120
Depreciation: 41.1%
J.D. Power Predicted Reliability Score: 3.5/5

When Chrysler introduced its brand new 300 line in 2005, it met with much success. The 300C was awarded Motor Trend Car of the Year. The vehicle sold extremely well -- nearly 145,000 units in the first year, and 120,000 in the second. Since then, however, sales of the full-size sedan have dropped heavily as other vehicles, including the new Buick Lucerne, the Ford Taurus, and the Ford Fusion, have gained ground in the market. The 2010 version of the 300 posted a record-low 37,116 units sold. According to Edmunds, many of its features, including its four-speed automatic transmission, have become outdated. In response to flagging sales, Chrysler introduced a completely overhauled 2011 edition of the vehicle.

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