Driving in different directions
By Alex Taylor III, Fortune senior editor

(FORTUNE Magazine) -- When auto sales were totaled up for July, a pair of historic shifts took place.

Toyota (Charts) outsold Ford (Charts), which promptly announced steep production cuts for the remainder of the year. And Honda outsold DaimlerChrysler's Chrysler Group for the first time, jumping to fourth place in the U.S. market. More than a one-month aberration, Honda's rise and Chrysler's fall are a lesson in short- and long-term planning.

Honda (Charts) likes to brag that it began working on fuel economy 40 years ago, when oil was $3 a barrel. That kept it out of step with competitors for a long time. While others raced to build bigger and beefier pickups and SUVs, Honda refused to develop either a V-8 engine or a traditional light truck and plunged enthusiastically into alternative fuel research.

Now that gas is $3 a gallon, customers are flocking to Hondas. While U.S. auto sales fell 17.4% in July, Honda's rose 6%; models like the small Civic and the subcompact Fit (above) are effectively sold out. Those robust U.S. sales have turbocharged Honda's corporate results. It reported sales up 14.8% for the first quarter, while net profits jumped 29.6%, to $1.2 billion.

Chrysler's story could not be more different. No other big automaker is so invested in light trucks, and none has hyped so hard its V-8 engines, the much advertised "Hemis." That combination profited Chrysler handsomely earlier in the decade as buyers flocked to models such as its brawny, gangsterish 300C sedan. But this year unsold vehicles have pushed inventories into the 90-day range, 50% higher than desirable.

When Chrysler launched a big clearance sale in July, customers yawned. The company ended the month with more days' supply than it started with, according to Automotive News. Nor were customers buying the TV pitch from the ubiquitous "Dr. Z" that engineering by partner Mercedes-Benz was making for better Chryslers. The $100 million campaign is a dud for now. Chrysler operating profits fell 91% in the second quarter, and the company says it could lose $600 million in the third.

Bad decisions have a long shelf life in the auto industry. This year Chrysler is talking up new Dodges and Jeeps, mostly with conventional engines. Honda, on the other hand, is beating the drum for a new hybrid, passenger-car diesels, and a full-sized fuel-cell vehicle. Now that the world has come to Honda, there are no signs it will move away anytime soon.  Top of page