Then came the events of September 11. Before the terrorist attacks the US economy was already showing signs of stagnation, but their effect on consumer confidence was profound and immediate. To bolster sales the US automotive industry (with GM leading the charge) began a campaign of heavy discounting in the form of 0% financing and huge cash-back incentive programs. At the same time they began cutting capacity to bring supply in line with decreased demand. But the combination of price war incentives and production cuts can be a dangerous duo. Incentives cease to be effective if the loss in revenue per vehicle is not made up for in volume. That volume can be difficult to attain if production is significantly reduced.

US automakers then faced the specter of huge pension deficits. Most companies stash much of their pension fund money in stocks. The effects of a protracted bear market can be devastating to the value of a company's pension fund. GM stands as a case in point. At the beginning of 2003 GM's pension obligation to retired employees was under funded to the tune of nearly $20 billion, which is almost equal to GM's overall market value. For every active employee on the payroll, GM has two retirees on the corporate dole. With the help of a modest recovery on Wall Street and some fancy financial footwork, GM has since managed to fully fund its pension coffers. However, GM and Ford (and to a lesser extent DaimlerChrysler) are still vulnerable to downward fluctuations of the stock market and the burden of skyrocketing health care costs. GM, for example, spends more on health care than any other entity in the US. Along with Ford and the Chrysler Group operations of DaimlerChrysler, GM sees itself as unfairly pitted against foreign competitors in Europe and Japan where healthcare is largely the burden of national governments, not corporate employers.

As US automakers see pension woes in their rearview mirrors, the focus is now on gaining or at least maintaining market share through new product launches. Ford is banking on their stable of classics: the re-vamped F-150 pickup -- its time-tested cash cow, and the almost universally loved and retro-styled 2005 Mustang. DaimlerChrysler and GM have plans to replace as much as 20% of their product ranges within the next year or so. However, they are fighting an uphill battle on the product front. Their enemy? The Japanese.

While the Big Three have struggled to maintain profits (or minimize losses) and keep market share from shrinking through incentives, Japanese automakers such as Toyota, Nissan, and Honda offer relatively few incentives while growing their market shares. What this means is that American consumers like Japanese cars enough to pay more for them, even in an uncertain economy.

The irony is that the very product emphasis that helped save US automakers in the mid 1990s, the SUV, is what has put them behind the 8-ball now. As US car companies emphasized SUV and other light truck development, the Japanese further increased their dominance of the passenger car market. To make matters worse, the Japanese have entered a market segment that they traditionally have ignored due to Detroit's dominance -- full-size pickups. Toyota was the first Japanese automaker to offer a full-size truck with its introduction of the Tundra. Not to be outdone, Nissan has opened a plant in Mississippi where it is rolling out its full-size truck, the Titan.