The sky didn’t fall after all.

A confluence of positive moves including corporate restructuring and retooling giving consumers what they wanted plus negative factors that played into Detroit’s hands such as Japan’s tsunami and rising gas prices has led the US auto industry to an unexpected renaissance.

In 2009 GM and Chrysler received $80 billion in controversial government bailouts while Ford barely avoided dipping its hand into the government till. Now all three companies are reporting healthy profits GM and Chrysler are repaying their loans ahead of schedule and May sales’ figures show that the Big Three increased market share between 7–19% in the past year while Japanese competitors Honda and Toyota experienced declines of 16% and 28% respectively. 

“The Japanese auto companies haven’t been dethroned” says automobile industry expert Dr. Clay M. Voorhees a marketing professor at Michigan State University’s Broad College of Business “but the American companies have made great strides and are once again relevant in the conversation.”

It is still too early to tell if the US auto industry is headed back toward dominating the car market as it did in 1965 when the Big Three garnered 90% of the domestic auto market. By 2000 that market share had fallen to 64% and by 2010 had dropped precipitously to 43%.

The factors behind the industry’s revitalization will certainly be closely studied in an economy still struggling to recover from the recession brought on by the 2008 collapse of the financial and housing markets.

Automobile companies took full advantage of their near demise to significantly loosen the stranglehold that labor unions had over them for decades. The United Auto Workers (UAW) union agreed to significant reductions in retiree benefits and a 50% wage reduction for new workers.

Ford GM and Chrysler finally did what industry analysts were telling them to do for decades — shed redundant brands which spread their focus and resources thin. GM stopped producing vehicles under the Saturn Oldsmobile Hummer and Pontiac labels. Ford shed its Mercury brand and sold its stake in Saab Jaguar and Land Rover. Chrysler ditched its Plymouth brand and dissolved its merger with Germany’s Daimler AG (Mercedes-Benz).

Across the ocean Toyota’s string of safety woes including stuck gas pedals that led to massive recalls last year greatly tarnished its reputation for quality and reliability. Japan’s recent earthquake and tsunami significantly reduced the Japanese companies’ production capacity.

Even without Toyota’s recent troubles domestic automakers had considerably narrowed the quality and reliability gap. According to the JD Power and Associates 2010 Initial Quality Study Ford experienced fewer problems per vehicle than the industry average and all but one of GM’s brands scored higher than Toyota. Chrysler scored only slightly lower than the leading Japanese automaker.

Dr. Voorhees says that these quality strides have opened a floodgate of opportunity for the Big Three. “Consumers now see a solid power train and a reliable vehicle as ‘givens’ on practically any vehicle they’ll purchase and thus put more focus on the add-ons that make driving an experience. The Big Three have done a great job reacting to this trend.”

He cites some highly popular “cockpit technology” now found in American vehicles such as Ford’s Sync system that offers drivers cell-phone information and entertainment connectivity as well as voice commands and turn-by-turn navigation directions.

GM’s OnStar communication system also matured from its safety-related origins into a fun interactive system. Additionally the American companies are churning out more stylish vehicles while foreign automakers have been slow to revamp their formerly more popular selection.

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