Automotive News - August 4, 2008 - (Page 14) 14 • AUGUST 4, 2008 Detroit’s truck trauma is self-inflicted Domestics are now paying for reliance on high-profit models Kevin Smith While the price of gasoline is an obvious scapegoat for the current panic in Detroit, the real cause is far more complicated. Over time, the Detroit 3 have become more exposed to the gasoline price escalation and economic decline because they have created their own risky operational situation. They have become enmeshed in an ugly spiral of truck reliance and “push” marketing to feed a structure of high legacy and labor costs and manufacturing overcapacity. Today’s challenging business environment, led by $4-a-gallon gasoline, caught Detroit unprepared. Now is the Detroit 3’s last and best chance to transform themselves into consumerdriven, or “pull,” global enterprises that deliver a full range of high-value, competitive products. But time is short. Kevin Smith is the founder of 360 Brand Machine LLC, an automotive marketing consultancy. efficiency. And hubris has too often won over humility. EDITORIAL STAFF 313-446-0361 E-mail autonews@crain.com Web site www.autonews.com Keith E. Crain Publisher and Editor-in-Chief Peter Brown Associate Publisher and Editorial Director DETROIT 313-446-0361 Fax: 313-446-0383 1155 Gratiot Ave. Detroit, MI 48207-2997 David Sedgwick Editor dsedgwick@crain.com Edward Lapham Executive Editor elapham@crain.com Richard Johnson Managing Editor rjohnson@crain.com John K. Teahen Jr. Senior Editor Mary Beth Vander Schaaf Deputy Managing Editor Charles Child International Editor David Kushma Retail Editor Dave Guilford News Editor Philip Nussel Special Projects Editor James B. Treece Industry Editor Jesse Snyder Senior Writer Karen Faust O’Rourke Insight Editor COPY EDITORS: Bob Allen, Tom Fetters, Patricia C. Foley, Kenn Jones, Gregory Skwira Susan Zavela Bamford/Graphics Editor Rick Kranz/Product Editor REPORTERS: Leslie J. Allen, David Barkholz, Mary Connelly, Ralph Kisiel, Jamie LaReau, Arlena Sawyers, Robert Sherefkin, Richard Truett, Bradford Wernle, Amy Wilson Mary Raetz Director, Automotive News Data Center Debi Domby, Camille Pippen Research Assistants Dan Jones Office Manager Robertta Savage Editorial Assistant Corinne M. Price, Michael Garrison Information Center LOS ANGELES Mark Rechtin/Bureau Chief 310-739-8009 Fax: 310-832-6362 Kathy Jackson/Reporter 323-370-2481 Fax: 323-655-8157 Alysha Webb/Reporter awebb@crain.com 6500 Wilshire Blvd. Los Angeles, CA 90048-4947 NEW YORK Diana T. Kurylko/Reporter Phone/fax: 908-273-6059 dkurylko@crain.com WASHINGTON Donna Harris/Reporter 540-668-7295 Fax: 540-668-7296 Harry Stoffer/Reporter 202-662-7212 Fax: 202-638-3155 814 National Press Building Washington, DC 20045-1801 MID-SOUTH Lindsay Chappell/Bureau Chief 615-371-6654 Fax: 615-371-6655 April Wortham/Reporter 615-371-6617 104 East Park Drive, Suite 315, Brentwood, TN 37027 SHANGHAI Steven Ribet/Staff Reporter (86) 21 6431 1227 stevenribet@yahoo.com.hk TOKYO Hans Greimel/Asia Editor +81-3-3828-9060 Fax: +81-3-3828-9061 hgreimel@crain.com Yurakucho Denki Bldg., 20th Floor 1-7-1 Yurakucho, Chiyoda-ku, Tokyo 100-0006, Japan TURIN Luca Ciferri/Reporter lciferri@craincom.de +39-011 961 0194 Fax: +39-011 961 0113 Viale Cavaglia, 8 10029 Villastellone (TO) Italy STAFF CORRESPONDENT: Eric Freedman/Legal file, 517-337-0269 www.autonews.com DETROIT Victor Galvan/Web Editor vgalvan@crain.com 313-446-0345 Scott Kennedy/Multimedia Editor comment Opportunity for change Once again, the author says, the Detroit 3 are playing catch-up in a hot segment. In the mid-sized crossover segment, he says, several of their entries, including the Pontiac Aztek, shown, failed to catch on with consumers. every CEO’s responsibility, and quarterly profits are a key performance benchmark for U.S. companies. Trucks have been the most fertile ground for profits in the U.S. market. As such, trucks are where the Detroit carmakers naturally invested heavy resources. But that investment has come at the expense of a more balanced product portfolio. Detroit’s small cars are still judged by many to be a generation behind cars like the Honda Civic and Fit, the Toyota Prius and the Mazda3. Meantime, a small-car boom is under way. So, once again, Detroit is playing catch-up in a hot and growing segment. Similarly, while Detroit’s pickups and full-sized SUVs were fortified with huge investments, Detroit missed out on a big piece of the crossover boom. And when Detroit came to the midsized crossover party, it largely failed. The Pontiac Aztek, Buick Rendezvous, Chrysler Pacifica and Ford Freestyle all missed the consumer sweet spot. Today, the domestics finally have more competitive crossover products, but where were they with breakthrough designs when many consumers were getting bored with truck-based SUVs? One prong of their dilemma: Crossovers would naturally cannibalize their huge investments in truckplatform SUVs. Again, the dilemma is push vs. pull and being manufacturer-driven vs. consumer-driven. The culture of Detroit has always been more about quarterly profits and shareholder value than longterm horizons. With a new labor deal creating a transformational opportunity, Detroit’s captains must transform their push cultures into consumer-driven pull organizations, more like those that have powered Toyota’s and Honda’s success. Let’s hope Detroit has finally learned a couple of business-case lessons: Market oligopolies like the one the Detroit 3 had in pickups and SUVs never last, and efficiency always wins. This is the last do-over Detroit gets. Push is history. It’s time to pull. And time is running out. Short term vs. long term Detroit’s captains couldn’t foresee or sufficiently affect some of the structural business changes coming their way ($4-a-gallon gasoline, the housing collapse, the economic slowdown). Nor could they make radical changes to an uncompetitive business model with significant labor and legacy cost issues. But while nobody saw oil going to $140 a barrel, many forecasters saw $100 a barrel. So, the Detroit 3 could have been better prepared if they had hedged their bets by developing more efficient vehicles and technology and invested in more flexible plants and platforms. In turn, Asian business models and operating cultures have proved far more strategic and profitable — although, in fairness, much of that was done without the legacy issues the Detroit 3 faced. Long-term planning and managing success have never been Detroit strengths, either for labor or management. Excess usually has trumped Globalization isn’t easy For many years, the Detroit carmakers have been trying to make their operations more global, and they have made significant progress. But given their vast size and historically autonomous national structures, creating the one-company global enterprise they desperately need has proved difficult. Indeed, collaboration and integration would be huge challenges even if they were the lone corporate focus. But they haven’t been. While the Detroit 3 have attempted to become more global, they have been handcuffed to a separate and costly U.S. strategy. They have relied on light-truck profits and used lessdeveloped, cost-engineered small cars to balance corporate average fuel economy numbers so they could sell higher-margin trucks. But accusing Detroit’s captains of falling asleep at the wheel would be unfair. Shareholder value creation is What do you think? We would like to hear from you. Send a letter to the editor via e-mail (autonews@crain.com) or to the Detroit address near the top of the box at right. Here’s what we need. No more than 250 words Your name and title, company name if we can print it, city and state; or tell us about your connection to the auto industry Your phone number or e-mail address Your permission to print it Why won’t consumers buy Detroit cars? continued from Page 12 and “$1.02 a pound” and those great TV commercials? I ran the world’s largest VW distributor for 23 years, and those ads sold more than a million VWs through our exclusive dealers. I recommend that Teahen buy Bill Bernbach’s Book: A History of the Advertising That Changed the History of Advertising by Bob Levenson. Bill was a creative genius. RAINER JOSENHANSS CEO P.M.A. Worldwide Inc. Osprey, Fla. The writer is a consultant to auto dealers. Editor’s Note: Teahen acknowledges that the VW ads were superb, but the column was about slogans or tag lines, not the ads themselves. To the Editor: I read John K. Teahen Jr.’s July 14 SalesTales column with interest (“2008 sales forecast? 14,652,757”). I am a third-generation Chevrolet dealer whose family has been affiliated with General Motors for nearly 90 years. My family and I have seen good years and bad. I am dismayed that the Detroit 3’s U.S. market share was only 45.8 percent in June. Being near a GM city (St. Catharines, Ontario), we find a similar downward trend, which is indicative of the domestic market countrywide. Suddenly, we have come to the awakening that we have the wrong vehicles in the market. But our small car, the Chevrolet Aveo, fell 19.7 percent in U.S. sales in June. Why? Surely this must be the right car for the times. Are U.S. sales of the Chevrolet Aveo fell 19.7 percent in June. The letter writer, a Chevy dealer, asks: “Why? Surely this must be the right car for the times.” domestic brands so looked down on that even the fuel-efficient cars are dismissed? We see what is wrong, but nobody asks why. We have the best product we have ever had. Is it marketing? Perception? Arrogance? Ignorance? Product? The dealer network? The powers that be must ask consumers: Why aren’t you buying our products? What have the imports got that we don’t? THOMAS A. WILLS Dealer/Owner Wills Chevrolet Ltd. Grimsby, Ontario http://www.autonews.com http://www.autonews.com
Table of Contents Feed for the Digital Edition of Automotive News - August 4, 2008 Automotive News - August 4, 2008 Losing leases: It hurts already Crisis at Chrysler: Buyers bail GM's really bad news: Its revenue Lincoln reworks bonus plan for dealers Pain spreads beyond Detroit: Nissan offers employee buyouts Mitsubishi changes dealer advisory board GM repeats employee discount program Ford merges brands' sales, marketing After 5 funky years, Toyota's Scion now finds itself in a funk It's a body, er, a bus by Fisher At Tech Center, form follows function Industry nemesis again turns up heat on climate Right products, diverse customers raise suppliers' profits Last-minute leases swamp Chrysler With leases off the table, Chrysler offers new sales incentives GM favors 4 endorsed vendors of dealer management systems GKN to supply F-150 FX4's differential For sale: 2 Metaldyne plants 1 week's notice: Chrysler dealers deserved better Get used to the roller coaster That 1934 Reo had a clutch pedal We sell what the public wants Decision makers can't use hindsight Detroit's truck trauma is self-inflicted Why won't consumers buy Detroit cars? Speaking of ads, don't overlook VW Software helps dealers manage parts Service survey: Customer satisfaction rises Researcher: Vehicles can prevent crashes Personnel Microsoft will offer Live Search Dealers Picture This Nissan offers buyouts to its Tenn. workers Lincoln-Mercury exec joins Kia Kaline out at Ford Penske earnings drop slightly Asbury will move; profits slip S&P downgrades American Axle Best sales news: July is over Now THAT'S resale value ... Sirius-XM satellite radio deal: A mixed bag Don't be misled by Chery's sales; it's a key player McCurdy applies some political (tire) pressure A star is born: The saga of the shrinking sticker Our flag is still there Obama-mobile? Or McCain-carrier? Automotive News - August 4, 2008 Automotive News - August 4, 2008 - (Page Intro) Automotive News - August 4, 2008 - GM's really bad news: Its revenue (Page 1) Automotive News - August 4, 2008 - GM's really bad news: Its revenue (Page 2) Automotive News - August 4, 2008 - Ford merges brands' sales, marketing (Page 3) Automotive News - August 4, 2008 - After 5 funky years, Toyota's Scion now finds itself in a funk (Page 4) Automotive News - August 4, 2008 - After 5 funky years, Toyota's Scion now finds itself in a funk (Page 5) Automotive News - August 4, 2008 - Right products, diverse customers raise suppliers' profits (Page 6) Automotive News - August 4, 2008 - Right products, diverse customers raise suppliers' profits (Page 7) Automotive News - August 4, 2008 - With leases off the table, Chrysler offers new sales incentives (Page 8) Automotive News - August 4, 2008 - With leases off the table, Chrysler offers new sales incentives (Page 9) Automotive News - August 4, 2008 - For sale: 2 Metaldyne plants (Page 10) Automotive News - August 4, 2008 - For sale: 2 Metaldyne plants (Page 11) Automotive News - August 4, 2008 - Decision makers can't use hindsight (Page 12) Automotive News - August 4, 2008 - Decision makers can't use hindsight (Page 13) Automotive News - August 4, 2008 - Speaking of ads, don't overlook VW (Page 14) Automotive News - August 4, 2008 - Service survey: Customer satisfaction rises (Page 15) Automotive News - August 4, 2008 - Personnel (Page 16) Automotive News - August 4, 2008 - Dealers (Page 17) Automotive News - August 4, 2008 - Dealers (Page 18) Automotive News - August 4, 2008 - Picture This (Page 19) Automotive News - August 4, 2008 - Picture This (Page 20) Automotive News - August 4, 2008 - Picture This (Page 21) Automotive News - August 4, 2008 - Picture This (Page 22) Automotive News - August 4, 2008 - Picture This (Page 23) Automotive News - August 4, 2008 - Nissan offers buyouts to its Tenn. workers (Page 24) Automotive News - August 4, 2008 - S&P downgrades American Axle (Page 25) Automotive News - August 4, 2008 - S&P downgrades American Axle (Page 26) Automotive News - August 4, 2008 - Best sales news: July is over (Page 27) Automotive News - August 4, 2008 - Best sales news: July is over (Page 28) Automotive News - August 4, 2008 - Best sales news: July is over (Page 29) Automotive News - August 4, 2008 - Obama-mobile? Or McCain-carrier? (Page 30) Automotive News - August 4, 2008 - Obama-mobile? Or McCain-carrier? (Page 31) Automotive News - August 4, 2008 - Obama-mobile? Or McCain-carrier? (Page 32)
For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.