Mercury, Saturn, Pontiac and Hummer have been laid to rest, joining the Edsel, the Chevy Vega, the Ford Pinto and other brands in car heaven.

A year ago, General Motors completed a deal to sell Swedish automaker Saab to Spyker Cars, a Dutch manufacturer. That followed a move by Ford in 2008 to sell the Land Rover and Jaguar brands to India’s Tata Motors. And the venerable Swedish automaker Volvo now has a German CEO and is owned by a Chinese carmaker called Geely.

Meanwhile, Ford — the only U.S. automaker not to take a government bailout during the recession — recently announced plans to hire more than 7,000 workers in the United States over the next two years as the company begins producing several new vehicles. Reborn after bailouts and bankruptcies, a restructured GM and Chrysler are working to revive their images and regain sales.

To be sure, a lot has changed in the worldwide auto business in the last couple of years. To discuss the outlook for 2011 and beyond, Knowledge at Wharton sat down with Wharton management professor John Paul MacDuffie, who specializes in analyzing car companies.

An edited transcript of the conversation follows.

Knowledge at Wharton: We’ve talked in the past about the ever-changing car business, and it continues to change. So much has changed in recent months that it might be a good idea to give our listeners and our readers some idea of the landscape out there right now. Which car companies are considered the major manufacturers? We have GM, Ford and Chrysler here in the U.S. and there is also Toyota, Nissan, Hyundai and Volkswagen, maybe. Have I missed anybody?

MacDuffie: You left out Honda, certainly.

Knowledge at Wharton: Honda, OK.

MacDuffie: And it’s important to recognize that some of the firms you named are tightly affiliated with other, relatively large automakers, such as the Renault-Nissan alliance, and the fact that Fiat and Chrysler are tied up now. You know, we went through a whole change of terminology as the U.S. companies declined from the “Big Three” to the “Detroit Three.” And now, some people are using the term, “the Big Seven,” to include the Japanese companies that have been producing a lot in the U.S. — Toyota, Nissan, Honda and now Hyundai, the Korean company, as well. Volkswagen is making a bid to increase its sales greatly in the U.S., building an assembly plant here for the first time. And Volkswagen is already larger than a number of those other firms worldwide. In fact, Volkswagen has announced a goal to overtake Toyota as the number one carmaker in the world, which is an ambitious goal, and one that carries some peril.

Knowledge at Wharton: We’ll talk about Volkswagen in a few minutes specifically. But let me ask you this: The auto show is being held in Detroit, and the news coming out of the event is very optimistic projections and predictions about the turnaround in the auto business. Do you buy into that?

MacDuffie: Sure. The excitement was partly in relation to the last couple of years, which were dismal for the industry, and pretty depressing at the auto show. [But now] sales have been growing. They’re still a long way from what was the historic trend of 14, 15 or 16 million vehicles per year in the U.S. market; 2010 was about 11 million, and the predictions for 2011 range from 12 to 13.5 million. That is still off that historic rate, but as a percentage increase, and given how low things dropped — down to nine million in 2009 — it’s really a huge gain.

That is the upside for all these companies that pared down to deal with the bottom of the trough, and particularly for the U.S. companies that came through the restructuring of bankruptcy. General Motors’ cost structure was adjusted, you might say, through the bankruptcy procedures, so that they would break even at about 10 million vehicles a year. Now that the market passes 11 million, or goes to 12 million [and then to] 13 million, that should offer them an awful lot of profit upside. Of course, they have to keep selling the vehicles.

Knowledge at Wharton: Do you predict, and do most analysts predict, that all of the big companies that we mentioned a few minutes ago will be profitable in 2011?

MacDuffie: I think there’s expectation of profitability for the industry pretty widely. When you get to some of the smaller companies, that’s less sure. There’s still a big question mark hanging over the Chrysler-Fiat tie-up, although Sergio Marchionne, the CEO, makes a lot of very bold pronouncements.

But a lot of that is based on product line that is just being rolled out. Chrysler has stayed more dependent on big trucks and SUVs for its sales than anything else. Gas prices have stayed relatively low. Those sales have stayed relatively strong. But the whole logic of the Chrysler-Fiat tie-up was to bring the Fiat small car line-up to the U.S. That hasn’t happened yet. When that happens, that’ll make them much more balanced, and able to take advantage of what looks like a likely boost in small car demand.

Knowledge at Wharton: You’ve mentioned a few specifics of companies buying other companies. It’s my understanding that Jaguar and Land Rover are now owned by a Chinese automaker?

MacDuffie: Indian … by Tata [Motors].

Knowledge at Wharton: Does that impact the way that consumers view these various products? I mean, it used to be that X-car was a German car, and Y-car — say, a Volvo — was a Swedish car. That seems to be less true now than it’s ever been. Will that affect the way these companies market their vehicles to consumers?

MacDuffie: In some ways, the issue will play out in the next few years in terms of the brands that are best-known with a particular national association. So, the Jaguar-Land Rover association with the U.K. now being handled by an Indian company is a particularly interesting one, given the historical relationship between those countries…. So far, it may be too early to say exactly what will happen. But in general, consumers, I think, have gotten quite comfortable with the fact that these vehicles are made in all sorts of different places. You can’t actually tell from knowing the nationality of the company where the vehicle is made. And increasingly, that may be true more generally. The fact that Volvo is now owned by Geely, a Chinese company — how heavily is that going to affect the perception of the Volvo brand?

One issue that’s being debated right now in that particular relationship is whether to build Volvos in China to sell as export vehicles. They’ll certainly build them in China to sell in China. But how much is the “Made in Sweden,” “Made in northern Europe” part of the Volvo brand — how many chances are they willing to take with that, in terms of the location of manufacturing? My guess is that consumers are so accustomed to this being a global world, both in terms of manufacturing and in terms of types among manufacturers, that it won’t be a big issue. It’s the product attributes that will count.

Knowledge at Wharton: Can you tell us which of the big car companies, in your view, are the strongest and the weakest right now in their relative positions?

MacDuffie: For the U.S. companies, they have had this opportunity to come back. Ford is looking particularly strong. They have the advantage of not having taken any government money, so for strong opponents of the bailouts, that probably still shadows their view of GM and Chrysler. Ford does not have that disadvantage. Ford has also been gaining a lot of quality attention and praise for having high quality across their product line. Their brand awareness seems to be rising, and the positive perceptions of the Ford brand are now, according to a recent Consumer Reports survey, very similar to the Toyota brand. You know, Toyota may be the big company that still is showing the most need to recover from the negatives of its quality and safety recalls.

Toyota still ranks very high on most consumers’ lists in terms of perceived quality, and their sales internationally are still quite strong, but I think they know that they’ve been hurt more severely in certain markets, in terms of reputation. And as this market comes back, as overall demand comes back, they may have less opportunity to grab that higher demand with all these stronger competitors. Volkswagen, as I mentioned, announced these very ambitious goals to be the number one automaker in the world by 2018. Given that some of Toyota’s problems were seen as growing too rapidly in too short a time, potentially with the goal of overtaking GM as number one, I think there are definitely risks in that. Volkswagen has had a very small market share in the United States for a company with those kinds of global ambitions. They’re building and opening their first plant in the U.S. [in Chattanooga, Tenn.] soon. That has seemed to be an important step for most automakers to boost their market share in the U.S.

I think there are some risks for Volkswagen. But Volkswagen has been a very global company for a long time. The company was one of the earliest investors in China, with a large market share there and one of the earliest investors in Brazil, with a large market share there. And they know how to manage a global company.

Knowledge at Wharton: Those of us of a certain age will remember the Westmoreland County, Pa. plant that produced Volkswagens back in the 1970s and 1980s. And do you remember, was that shuttered simply because it wasn’t viable at the time?

MacDuffie: That plant was closed after about 10 years, which is a very short life for an assembly plant, because of a combination of quality problems and labor problems, and perhaps because it picked up some of the early [effects] of the recession that came at the end of the 1970s and early 1980s. I think it created an atmosphere in the early 1980s in which people thought it was actually pretty hard to come to the U.S. and successfully build a manufacturing plant, so that when the Japanese started to come starting in 1982 with Honda, there was a lot of skepticism about whether they could be successful.

I would assume, also, that Volkswagen may have felt a bit burned by the experience, and that’s why they’ve been the latest of the Germans to come to the U.S. BMW and Mercedes have both had plants in the U.S. for some time now.

Knowledge at Wharton: Any there particular hurdles for VW, vis a vis the American market, amongst consumers?

MacDuffie: Well, you know, they have seemed to do very well with certain aspects of their brand image: [having] appealing products [that are] fun to drive, [with a] European look and feel. Their quality has not been very good, and I think we see that consumers are actually quite sensitive to the quality ratings of vehicles, particularly when year-in-year-out, they see negative quality ratings. And that has largely been true for Volkswagen…. Hyundai is the best indicator of how powerful it is to improve your quality. Since Hyundai did that, their worldwide market share has been growing very rapidly, including in the U.S.

Knowledge at Wharton: Can you pinpoint the most exciting car company right now, worldwide? Or one or two that, in your view, seem to have already grabbed the attentions of consumers in a big way, or are poised to do that?

MacDuffie: I think that the fortunes of companies seem to rise and fall. I mean, there’s a lot of excitement around GM and Ford these days because of the way that they’ve come back. And they have a lot of new products that are stirring a lot of excitement. I tend to look more at some of the exciting product trends, and see which companies managed to succeed in getting out ahead of those, and capturing some of the buzz from that. I think one of the most interesting developments there is the coming … competition between hybrid electric vehicles, as in Toyota’s Prius, and all-electric vehicles, as now best exemplified by Nissan’s Leaf. But also, by GM’s Chevy Volt, which is a slightly different design.

Toyota has made a big bet on expanding the hybrid electric design to more and more products. They’re making Prius a brand, instead of simply a model. And they believe that they can use that technology to produce a wide variety of products, some of which are extremely fuel-efficient and play to that niche, but some of which use that design to deliver best-in-class power and handling, for example. So, Nissan, on the other hand, feels that the hybrid was a transitional technology that won’t be around for long, and they’ve made the leap straight to electric. Others will be watching that experience closely. The all-electric vehicle, of course, depend on recharging infrastructure. A certain set of consumers … can get their garages wired for that high-voltage line to recharge. But a whole other set of consumers will have problems with that, if they live in cities or in other ways don’t have that infrastructure. We’re just going to start seeing how people experience the continued growth in these two segments. The big issue with electric cars that really nobody knows about is sometimes called range anxiety. Will people buy an electric vehicle if they worry that for at least some small percentage of their trips, they may not be able to complete the trip because of the battery running out and not having a recharging opportunity?

Obviously, as infrastructure proceeds, that range anxiety can decrease. But all the forces that will build the infrastructure investment are waiting to see if there’s enough demand for the vehicle. It’s a chicken and egg problem. Certainly the U.S. government is not in a position to put a lot of money into that kind of infrastructure right now. Certain European countries are a little further along. But the generally weak economies in many of these countries is going to prevent a lot of rapid movement on that.

Knowledge at Wharton: In terms of the electric cars and range anxiety, if one of our listeners this year went out and bought an electric car, what would he or she encounter as a practical matter, every day? Would they have to, as you said, rewire one of the lines in their house to have a certain level of voltage that would charge the battery?

MacDuffie: Yes.

Knowledge at Wharton: And then when they get out, if they have the anxiety and they realize they’re running out of power — today, there’s no place for them to go, is there? I mean, service stations aren’t equipped for these vehicles. Or are they?

MacDuffie: No, that’s right. The wiring that you would do in your home garage is simply a heavy-duty line similar to what you might use for certain appliances that need a lot of electricity…. These vehicles can be recharged on a regular electric current; it just takes a lot longer. You can easily recharge overnight with the higher voltage line, but you’d need more time. If you did get stuck and you could get to any place where you could run an extension cord, and you could wait around for a while [you could recharge and get back on the road.] But you can already see why this is a difficult set of conditions.

Knowledge at Wharton: Is that a real big stumbling block to selling these vehicles, do you think? Or are there going to be enough consumers who are willing to take a chance, buy an electric car for environmental reasons, and make it their second car, perhaps?

MacDuffie: Sure. There are a lot of unknowns. For a lot of people, having an electric vehicle as a second car, which they would only use in local commuting needs, means they’re protected if they need a vehicle for a longer trip, and they should be fine, particularly if they’ve got easy recharging. They might be turned off by the price, which is going to be rather high for a while. So, they might need a commitment to the environmental contribution that would take them past those price considerations. Prices will come down, partly related to volume, but it’s another chicken and egg issue there.

Knowledge at Wharton: Sure. Do you think that Nissan, which has made the bet on an all-electric vehicle — is that the right bet to make, in your view, vis a vis the hybrid?

MacDuffie: Well, it’s a question that differs from company to company. Toyota was first with the hybrid electric design, and Honda was second. Nissan CEO Carlos Ghosn said very clearly, “There’s not a lot of value in us following to be third or fourth in the market with a hybrid vehicle,” because the costs of developing the technology are so great. I believe that they did license a hybrid design from either Toyota or Honda in order to have at least something in their showrooms for a little while. But they made a strategic decision a few years back that the differentiating move for them would be to go right away to all-electric, and get it into the market sooner than anyone else.

I think that probably is a smart, strategic move for them, because there’s so much uncertainty about what will happen. It also makes sense for Toyota to build on its existing investment in hybrid, and in branding it with the Prius name, to build on that by having Prius becoming a brand and populating it with a lot more vehicles.

Knowledge at Wharton: And I think Toyota recently announced it’s going to produce a station wagon with the Prius brand.

MacDuffie: Yes.

Knowledge at Wharton: That’s its first foray into another type of vehicle.

MacDuffie: Yes. Well, and they also plan to have a much smaller version. So, they’re actually going to plan to expand it across the range. The whole small car segment is really going to heat up and be a very interesting one to watch in terms of competition. The Japanese and Koreans have traditionally been strong there. Hyundai and Kia, with improving quality, now contend much more with the Japanese. But the U.S. companies, for the first time in decades — and you might say, ever — now have serious contending vehicles in that space. And some of the traditional associations we have with small cars are starting to break down. [For example, now] there’s a luxury compact category. Some European makers have tried to put out products in that category in the past, with modest success in Europe and almost no success in the U.S. But Lexus and BMW both have announced a luxury compact…. These will be priced higher than you would expect to pay for a small car, but they’ll be loaded with all sorts of extra features, and luxury appointments.

Knowledge at Wharton: Will we see more and more vehicles equipped with neat gizmos, to use the scientific term, inside the car?

MacDuffie: Yes.

Knowledge at Wharton: What are we likely to see in vehicles going forward in that regard? How will companies try to differentiate themselves, if they can, with that technology?

MacDuffie: January each year is always a good time to focus on that topic, because between the auto show and the consumer electronics show, a lot of new stuff is being put out there by various companies. It does look like the collaborations between auto companies and IT companies is producing more new developments, more fruit, if you will, in terms of new features. I think those industries are so different, they’ve operated at such different clock speeds that those relationships haven’t always been so easy. But Ford and Microsoft developing Sync [which allows customers to make calls on their cell phones and control music and other functions using voice commands] were one of the early ones to start introducing a lot of features. And we start now seeing that much more widely.

You know, a few of the things that were announced at the auto show include a lot more ability to control certain vehicle features from your mobile device. You know, such as unlocking, or flashing the headlights to identify it. There’s going to be docking stations for tablets, where the tablet may provide a sort of replacement, and perhaps better-designed and easier to access, touch interface for all the vehicle controls, whether it’s audio or video or navigation, or even heating and cooling controls. There’s features that can let you create a little wi-fi hotspot for the passengers in the car. So, we’ll see a lot more of this. It’ll be trial and error. We’ll see which catch on with consumers. Regulators will be watching to see which of these have high peril, in terms of distracting drivers. I don’t expect a lot of regulation there, but even cautionary studies will, perhaps, discourage consumers from pursuing some of these options. But that, besides the drive chain innovations, the IT innovations in the vehicle are part of what make this a very exciting time.

Knowledge at Wharton: What about the economic outlook for the U.S., Western Europe and other parts of the world? Is that going to inhibit, in a serious way, new car sales, and maybe dampen some of the excitement that we saw at the auto show?

MacDuffie: Well, the developing country markets are still the ones that look to be high-growth. And it’s not only because they came out of the recession more quickly, but because they have a growing number of consumers who reach that level of income where they can buy a vehicle for the first time. An awful lot of the focus on growth in sales is still going to be in those developing markets. And everybody is cautious about how the lingering effects of the recession will affect car sales. As you noted, things fell so far, and people have put off purchases for long enough, that that alone should keep sales reaching this modest 12 million to 13 million level. The bet on having a lot more small cars and the intensified competition comes, I think, partly in anticipation that gas prices may go up again, giving a boost to that segment. But also, [because] those price tags are still smaller, for the most part. This luxury compact is still a very small niche. So, people who need to spend less may turn to some of those vehicles, particularly with some of the new features.

The assumption that people always want a bigger car has been a very successful one in the U.S. market, and a lot of past efforts to get more people into small cars have not worked. People have chosen SUVs and trucks, even with the gas mileage disadvantages. So, we’ll see. It could be something about how people think about gas prices in the future, sort of anticipating that they will be higher. It could have to do with simply the reaction to some of those new small car products satisfying more of what they’re looking for. But you’re right, there’s a big question mark that hangs over [what is the] second-largest purchase that a person makes in their life after a home. General economic conditions have a huge effect.

Knowledge at Wharton: If you had to buy a car now, what would it be? What vehicle or vehicles would you look at?

MacDuffie: I’ve started to read some of these accounts of people who’ve been able to take one of these electric vehicles — anything from the Nissan Leaf to the Tesla Roadster, at the high end — and just drive it for a while, trying to integrate it into their daily life, and get a feel for what these vehicles are like. So I would say I’m probably itching more than anything to have that kind of opportunity. See what it’s like to actually own one of these cars, and drive it in all conditions, and what’s exciting about it, what’s ordinary about it, what is unexpectedly frustrating or increases certain anxieties about getting places. That’s what I’d like to do.