Saturday, November 22, 2008

Bailing out the Big Three automakers

You know, I don't think it's too much to ask that a car company build the kind of car we want to buy, instead of the kind of car they want to sell us. An AP wire service article in today's paper started with this paragraph: "Ford Motor Co.'s F-150 pickup is the top-selling vehicle in the United States this year, with more than 432,000 purchased through October. But when people stop buying the F-150, it's not just Ford and its workers that suffer." The article goes on to list all the suppliers whose products go into the Ford F-150 pickup truck, who will have to lay off workers and maybe declare bankruptcy if you don't buy a Ford F-150.

If you reread the article, you'll see that it's a thinly veiled attempt to make you feel guilty about not buying a Ford F-150 pickup truck, "the top-selling vehicle in the United States this year." Now there's a new strategy from the automakers: guilt as a selling tactic. Here's what they're really saying: "If you don't buy our truck, we'll go out of business before Christmas, and so will our suppliers, and it will all be your fault."

Do you feel guilty about not buying an American-made car? Let me tell you: earlier this year, we went shopping for a new car for my daughter. (For the record, we ended up buying American. We bought a used Saturn, built back in the days when Saturn still built high-quality vehicles.) We concentrated our search on high-quality, low-maintenance, well-built, compact models. That meant that we concentrated mostly on selected Honda, Toyota, Hyundai and Saturn models.

At one dealership, the salesman talked us into taking a non-Saturn, American model for a test drive. Okay, it was used, but it was less than a year old. The dashboard was cracked in several places. The seats were uncomfortable. Several of the little plastic screw covers were missing. The brakes were mushy. The steering was imprecise and unresponsive. The car was noisy, even at low speeds. The fuel economy on this model was much worse than on its Japanese and Korean competitors. And the Consumer Reports maintenance rating on this model was Very Bad.

I think that he was being a typical used car salesman, simply trying to push a lemon off his lot. But the experience reinforced our opinions about American cars. It's the latest in a long line of experiences that make me not feel guilty about not buying American.

For over 20 years, American automakers have ignored all of their former customers who have abandoned American cars for Japanese and German cars. If they had been wise and just a teensy bit humble, they could have asked us why we were buying Accords and Avalons instead of Aspires and Aspens, Camrys and Civics instead of Cavaliers, and then they could have redirected their engineering efforts to create cars that competed directly, point for point, with those Japanese models. Instead, they chose three different responses:

1) Ignoring or belittling the foreign car builders and their customers.
2) Blindly insisting that the Aspires and Cavaliers were competitive, continuing to build them with doors so heavy that they sagged after a couple of years, interior trim that rattled at high speed from Day One, and suspensions that transmitted all high-speed road noise right into the center of the occupants' skulls -- not to mention mechanical assemblies with known design defects and a propensity to break down frequently and in expensive ways.
3) Changing the focus by convincing the American consumer (and doing a frighteningly good job of it) that he really didn't want a small car, what he wanted was a large SUV or pickup truck, and the larger the better.

This is what they've been doing for 20 years. Hey, the writing was on the wall 20 -- no, 27 years ago. The Honda Accord started taking over its market segment in 1981. The Toyota Camry joined it a couple of years later, and Detroit followed the three strategies I described above in responding to the challenge posed by these two Japanese success stories.

It's gotten worse since then. The Big Three had two radical successes in the intervening years, but in typical Detroit style they fumbled both successes.

One was Geo, a joint operation between GM and Toyota. At one point, the Geo Prizm, Chevy Nova and Toyota Corolla were all the same car, with minor styling and badging differences. They were good cars. We bought a 1990 Geo Prizm when it was 9 years old, and it's still running today. I think it's been in the shop twice in all those years. You can't buy a new Geo anymore, and the Chevy Nova has been discontinued.

The other was Saturn. Saturn started as an autonomous division of GM, with a mandate to do things their own way, and to do them in a new and different way. The early Saturn vehicles had radical (but appealing) styling, and their construction quality was top-notch. Their cars got consistently high ratings from Consumer Reports. At one time our extended famly owned four or five Saturns. Then GM killed the goose that laid the golden egg. They took away the division's autonomy, put in too many old-time GMers to run things the old GM way, and destroyed the mark's reputation for inventive styling and for quality. Today, Consumer Reports rates Saturn quality as just as bad as any other American car.

Similar stories could be told about Ford and Chrysler, who each had a turn at the top of the heap and blew it, Chrysler with their minivans, and Ford with, um, their minivans! And the T-bird and Mustang revivals. (In 2007, Toyota sold more Priuses than Ford sold Mustangs. Ford didn't take the hint.)

In the past five years, all auto makers have realized the awesome profit margins that could be realized by building and selling pickup trucks and SUVs (and their bastard offspring, crossover SUVs). SUVs got bigger and bigger, and more expensive, culminating in the Hummer H2, Cadillac Escalade, and Ford Excursion. I'm still trying to figure out how they fooled the American public into rushing to buy these gas-guzzling monstrosities, but they did. Their marketing campaigns were basically, "Forget the small cars. Buy one of these instead." Those marketing campaigns were so successful that the Big Three turned off the small-car spigot. They converted engineering groups, assembly lines and entire factories from small cars to trucks and SUVs. In parts of Colorado, 5 out of 6 vehicles on the road were pickup trucks or SUVs.

The Big Three marketing departments expressed their contempt for the urban truck/SUV owner in the term they used to describe these vehicles. While comedians called them "urban assault vehicles," Detroit called them "air haulers."

A lot of people still wanted to buy the small cars, though. Too bad Detroit didn't have any to sell. I walked through local Chevy, Ford and Chrysler showrooms several times in the last few years, inquiring about small cars. The showrooms and the front rows of the lots were full of "air haulers." If you didn't want an "air hauler," then the second and third rows held Camaros, Mustangs, Sebrings and other macho muscle-car wannabes. The small cars, the only things that could answer to the Accord, Civic, Camry, or Corolla, were way in the back. The dealer had only invested in five or six of them, and since the profit margin on them was so much lower, he didn't push them at all.

Okay, back to this year. This summer, crude oil prices skyrocketed, and gasoline prices jumped accordingly. Suddenly it was expensive to drive an "air hauler," and they magically started disappearing from the roads. Consumers were selling their SUVs, or at least putting them in the garage, and buying economical cars to replace them. And what cars did they have to choose from? That's right! The Japanese ones! Detroit had ignored that market segment for so long that the American consumers in that market segment were now ignoring Detroit.

(I don't really mean to ignore European models here. It's just that the European cars are not even a force in the market anymore. In 2007, Toyota not only sold more Priuses in the U.S. than Ford sold Mustangs; Toyota sold more Priuses in the U.S. than Volkswagen sold cars, period.)

Some of you may respond by giving me the model names of Detroit's contributions to the small-car market. And it's true, I've even seen some of them on the road. But they're more of an oddity, an American exception bobbing up and down in the sea of Japan. And once again, go driving past a Big Three dealership, and see how many of those small cars are in the front rows on the lot or featured in the showroom -- that's right, not very many.

Finally, I need to point out that you don't need to fall for the "buy American" guilt tactic, either. "Buy American" doesn't mean "Buy Detroit." All of the Hondas, and most of the Toyotas, on the road are really American cars -- that is, they're made in Ohio, Kentucky, California, or Tennessee, and many of the parts inside them are made in the U.S.A., in the same factories that (used to) make parts for Detroit. That means that when you buy a Honda Accord, you're supporting that parts supplier after all, the one who used to make parts for the Ford F-150.

The first comment to this posting will be a letter I sent to my incumbent and newly-elected Senators and Representatives, and to the Speaker of the House of Representatives.

1 comment:

Zyzmog said...

Here's a copy of the letter I sent to Speaker of the House Nancy Pelosi this week. Markey, Musgrave, Salazar and Udall got similar (but not identical) letters.
Dear Speaker Pelosi:

I am writing you in your capacity as Speaker of the House. I wish to thank you and the rest of Congress for not giving in to the Big Three automakers this week.

I, and the rest of the American taxpayers, do not want to see our tax dollars going to pay for the mistakes of the Big Three -- mistakes that they have made repeatedly over the last 20 years, in spite of the writing on the wall.

The writing on the wall was hard to miss. It was in big, ten-foot-tall, red-light-bulb letters. GM, Ford and Chrysler were too arrogant, or too wilfully ignorant, or something, to even find out the real reasons why Americans were buying more Toyotas, Hondas and Hyundais than American cars.

Their flight to Washington last week in three separate corporate jets symbolizes their arrogance and elitism, and the contempt with which they view the government and ordinary citizens.

GM's latest move, according to NPR, is to apply for "bank" status for their finance company, GMAC. If they are successful at getting GMAC designated as a bank, then General Motors will be a bank holding company, and automatically eligible for a piece of the $700 billion bailout pot.

Please expose and resist any effort on GM's part (or Ford's, or Chrysler's) to do an end run around Congress, the American people, and responsibility for their own actions.

Best regards
Ray Depew