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Thursday, December 04, 2008

Detroit's real problem

While most commentators on the misery of the auto industry seem to focus on the cost side – with many predictably blaming greedy workers or their unions for bargaining for decent wages (which are not, if you’ve seen this falsehood floating around, even close to $70 per hour after being combined with benefits) – and the plans also appear to have that cost-based focus, it seems to me the more fundamental problem is with atrocious big-picture marketing. It is the responsibility of the managements of the car companies to manage their image with the public, and the public image of American manufacturers is terrible.

It is an image that may never or only for a very brief time have been deserved as far as the actual product was concerned. Our 70s-era Honda Civic was easily the most unreliable car we’ve ever had, followed closely by a Japanese(Mitsubishi)–built compact with an American label, and probably followed not too far after that by our original beloved but brittle German-made Beetles. Easily the best cars we have ever had have been American cars, one from Ford in the 80s, the rest since from a wonderful GM dealer. Except for a brief dalliance with a scandalous SUV, we’ve always gotten 30 miles-per-gallon highway on the GM sedans – somewhat more on Grand Ams, even the very zippy 6-cylinder version, and actually pushed 35 MPG highway on trips with a powerful and relatively heavy V-6 Pontiac Bonneville in the early 90s.

Meanwhile, just as much or more than Detroit, Toyota, Nissan and Honda have been making and heavily promoting monster gas-guzzling SUVs. Their comparable sedans are usually about the same in mileage. There’s a lot of evidence that there is no quality gap, either. They’re all world class manufacturers and they all know how to engineer and manufacture extremely reliable cars. Yeah, yeah, design. Well, of course, that’s frightfully subjective, and the Big 3 have brought in their own hotshot Italian designers, but I look at some Camrys, Accords and the like and say, ho hum, looks pretty boring to me. They aren’t exactly Lamborghinis either.

Yet it rolls off everyone’s tongue as conventional wisdom: “Detroit” = gas-guzzling behemoths that break down all the time, while “Japanese cars,” or often “foreign manufactures” generally even including Europe (which make some of the biggest gas-gulping and breakdown-prone cars in the world) are assumed to be sleek makers of exquisitely-designed cars that are more fuel-efficient, have better quality, and come out of nothing but the most pristine roboticized plants you can imagine. It’s the standard accepted narrative that’s buried very deeply in there, and there isn’t a reporter anywhere in America, probably not even Detroit itself, who can’t rattle off the expected phrases to reinforce that awful image.

The result is what one might expect: for an industry in which the lifestyle image of the product is critically important – let’s face it, everyone, whatever car you get, it’s got to be cool – and in a time when “green” is the watchword of the day, especially among youth, the highly educated and along both coasts, the demographics of the American industry are simply awful. Market share keeps going down, because buyers of Honda Accords in their 20s don’t switch to their father’s Cadillac – the Oldsmobile being long-gone for these very reasons – when they hit 40.

Market share will only keep going down. And with declining market share comes inability to manage prices for profitable enterprise. I’d prefer to fully develop the data on this, but my eye-balling tells me that the major Japanese cars are commanding about a 10% premium in new car prices for basically the same car – same size, same weight, same engine-type, same mileage – while the depreciation differential only gets worse over time. Yes, it would be nice to knock another $1000 out of the cost of the car, but that’s real difficult nuts-and-bolts. Pricing power in the marketplace is about perception, which the Japanese manufacturers have to their credit recognized as malleable (even if it does to a great extent rely on fundamentals). With the long view historically attributed to Japanese companies, they have assiduously built up the image of fuel-efficiency and top quality over the last 30 years.

But what did the CEOs expect when they took the visible lead attacking efforts to assure automobile fuel efficiency, or failed to challenge the build-up of the conventional wisdom before it became that? Attacking fuel standards was tantamount to an admission that GM's or Ford's engineers just weren't good enough to do the job. Did they think such impressions wouldn't carry over into other ways that people judge a company?

The fundamentals may be there for the American companies now, but people do not know it, or do not belive it, or in some cases no longer care because in their circles a GM dinosaur of a car is as uncool as you can get. Everything was about numbers, and the wrong numbers at that. Units sold – up, happy and break out the champagne, down, get that Tony Robbins motivator-guy to fire up the troops. And stock price, a huge part of executive compensation, usually enough to distort decision-making. Meanwhile, marketing rot has been setting in for several decades. Yes, get some national healthcare relief from escalating costs for all American manufacturers. $34 billion? I’m for it, but split of a billion of that for one of the most massive and most challenging propaganda campaigns you’ll ever see – and I don’t mean propaganda in a pejorative sense here, either. They are going to need it for a massive turnaround of ingrained public opinion if the other $33 billion won’t be just going down the drain.

2 Comments:

Anonymous Anonymous said...

Let's see $ 50 a hour times 40 hours a week times 52 weeks times total work force. Then do the same for each catagory of workers.

Now. get it stright, take a cut in pay, or don't have a job, dont have a job and you must get money from the ones with a job. Just what do the Unions really do for you and the country. It's grate to take care of the workers, make safe places to work and drive companys out of busness, so they can start all over agen. Sounds just like the Democrap Plat Form to me.

5:51 PM  
Anonymous Anonymous said...

A very patriotic look at the car industry. I really can't see how the American cars would be equally as good as the European/Japanese counterparts. It's been always the case that American cars are ok on a straight road, but anything out of Europe or Japan blows them out of the water as far as driving.

9:41 AM  

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