I was only a kid when I first saw this odd-looking character on television tell the world, “If you can find a better car, buy it!”

I didn’t know then who Lee Iacocca was or why he cared about finding a better car. At that age, my only concern about cars was sitting still in my seat so as not to aggravate my father while he was driving.

Of course, that was back when a parent could discipline his child without fearing a visit from a blundering bureaucrat with soft sensibilities, a state-issued notepad and a canyon-sized “Daddy didn’t love me” chip on his shoulder.

Nonetheless, one thing I do remember is the nationalistic pride that Mr. Iacocca somehow instilled into nearly every American who watched his commercials.

You can’t deny – it was a great story.

When Lee Iacocca took over at Chrysler, the company was on the verge of bankruptcy.

You see, the company had been concentrating its efforts and money on gas guzzlers that no one was interested in due to the fuel crisis of the time. So he closed a few plants, initiated layoffs, cut nearly all the larger, unprofitable models…and introduced the subcompact Plymouth Horizon and Dodge Omni.

Both of these models sold over 300,000 units each in their debut year.

Following that success, Mr. Iacocca received a loan guarantee from the U.S .government. And while controversial, Chrysler took full advantage of the government’s decision to deliver the loan, and went on to release the Dodge Aries and Plymouth Reliant in 1981.

These vehicles were actually compact cars based on design proposals that Ford had rejected earlier on. They also sold quickly, and the company was able to pay back the government seven years earlier than expected.

And of course, two years later – the minivan. (For 22 years now, Chrysler has been the leader in minivan sales!)

Now I don’t mean to take up too much time here on a consolidated history lesson – but isn’t that what history’s all about? Learning from the mistakes…and successes of the past?

Punishing the Bottom Line

Today, Chrysler Group, General Motors and Ford are cutting second-half production to balance inventories with dismal sales.

The auto-makers’ reliance on big trucks and sport-utility vehicles, coupled with an influx of smaller, higher-mileage cars is punishing the bottom line.

Granted, we can’t overlook the beating these companies are taking on benefits packages for retired and aging employees as well. But let’s face it – if consumers were still buying the big SUVs and trucks, this wouldn’t be nearly as much of an issue as it is today.

But that’s definitely not the case. And U.S. auto-makers not only continue to feel the burn from a barrage of bad decisions over the past decade – their Japanese counterparts are driving their latest hybrids right into the hearts, minds and wallets of American consumers.

A Changing of the Guard?

While Ford and GM continue to close plants, and cut tens of thousands of jobs – Toyota just announced that it plans to boost its global sales to 9.8 million vehicles in 2008.

In 2003, Toyota surpassed Ford as the world’s #2 automaker in annual global sales.

The company’s latest plan, if successful, will allow it to overtake GM as the #1 automaker in annual global sales.

Much like Chrysler’s response to a shifting of consumer behavior towards larger, gus-guzzling vehicles, Toyota has turned its focus to smaller, fuel-efficient vehicles, like the Prius hybrid, Corolla compact and midsize Camry – the best-selling vehicle in the U.S. for eight of the last nine years.

GM and Ford on the other hand continued to rely on sales of their trucks and SUVs during this time. The result of that decision has been nothing short of devastating.

GM and Ford, as we all know, are in dangerous territory because they can’t sell their products. And Toyota is using this opportunity to pick up the pieces…growing its share of the U.S. market from 13.8 percent last year to 16.1 percent this past August.

It’s time to put up or shut down!

About two weeks ago, Ford announced a new plan that is expected to cut $5 billion in annual costs by the end of 2008. Management also announced that it plans to try to remake itself into a smaller, more competitive car company.

Of course, what they can offer consumers over the next few years will really be the ultimate test of whether or not the company’s restructuring efforts will amount to continued status-quo complacency or a desperately-needed shot of reality steroids.

I’m certainly hoping for the latter.

At this point, we are starting to see Ford and GM painstakingly embrace flex-fuel integration. But in the scheme of things…it’s going to take much more than that.

Increasing fuel-efficiency is a must. It’s just that simple. And adding more flex-fuel vehicles and E85 options to the market isn’t going to do it.

Of course, integrating a flex-fuel system in a plug-in hybrid electric vehicle (PHEV) could certainly allow for a fuel-efficient model with the added benefit of contributing to energy security.

Not a bad couple of selling points for consumers!

Now in all fairness, GM did announce this past June that it will be fast-tracking development of a PHEV that, according to anonymous GM officials, will have a fuel economy of more than 60 mpg.

But don’t think for a second that Toyota isn’t pursuing its own PHEV options at this very moment.

In fact, there’s already a PHEV prototype of Toyota’s Prius.

Listen, Plug-in technology exists. It works…and it’s going to happen. Because it’s what enough consumers want.

Now, if U.S. automakers are smart, they’ll take full advantage of the PHEV market. And if investors are smart – they’ll take full advantage of this respite in gas prices to buy shares of the companies developing batteries for PHEVs.

You see, with gas prices so low right now, a number of these stocks are experiencing a significant sell-off. And that means excellent buying opportunities for those who have figured out the price at the pump is nothing more than a convenient manipulation.

If you’d like to learn more about this market…and the companies that stand to profit from the eventual commercial production of PHEVs, join my free daily e-letter now !

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