THE MOTOR CITY MIRAGE.(American automakers' domination of the SUV market provided profits in the 1990s, but foreign automakers are now producing good SUVs of their own )

In January, 1994, Detroit turned its annual auto show into a giant coming-out party for the American automobile industry, a kind of Crystal Palace Exhibition for the Big Three. The previous decade and a half had been dismal for Ford, Chrysler, and General Motors; at times it had looked as though they might not survive. But by improving quality and design, and by taking hold of the new market for minivans and S.U.V.s, they had rebounded. The 1994 auto show was meant to demonstrate how far they'd come. With great fanfare, Chrysler unveiled the Dodge Stratus, a stylish four-door sedan, which, along with a higher-priced sibling, the Cirrus (there was, alas, no Cumulus), was Detroit's latest answer to the little juggernauts from Japan, the Toyota Camry and the Honda Accord.

So many show ponies turn out to be mules. The Stratus, in its early years, had twice as many defects, per car, as the Accord, and it is still an also-ran, with barely a fourth of the sales of its Japanese rivals. It was not the only American laggard. Since 1994, the Big Three's share of the passenger-car market has dropped from sixty-four per cent to forty-seven per cent. Detroit now loses money on most of the cars it makes. Foreign cars routinely dominate annual ten-best lists and have a much better resale value. They get stolen more often. And they're profitable, too.

Throughout the nineties, none of this seemed to matter, because Detroit had a silver bullet--the S.U.V. For every underwhelming Sunfire or Monte Carlo, there was an Explorer or a Grand Cherokee. The Big Three's profits on S.U.V.s and light trucks dwarfed their losses on cars. In 1999, G.M., Ford, and Chrysler earned a combined nineteen billion dollars. But then it all fell apart again. Chrysler lost two billion dollars in the second half of 2000 and two billion more in 2001. Ford lost $5.5 billion last year. G.M. is eking out small profits. It's as if the nineties had never happened.

Many have laid the blame for this collapse on the usual bogeys: a strong dollar, high pension costs, weak marketing. But the Big Three might also blame the very thing that supposedly saved them: the S.U.V. Many Detroit executives knew that the problems of the eighties had not been fixed. Their engineering and design processes were still bureaucratic and inefficient. Their relationships with suppliers were antagonistic. And though their factories are certainly more efficient than they used to be, they've still got nothing on the Japanese (many of whose factories are now in the U.S., of course): it takes Nissan and Honda thirty-one hours to build a car; at Ford, it takes forty-one. But the S.U.V. boom made these problems look much less urgent. Significant restructuring--shutting plants, eliminating brands, shaking up corporate hierarchies--seemed not just arduous ...