U.S. Auto Industry Caught with wrong product mix again
In the 1970s The U.S. auto industry was blindsided by the 1973 Oil Embargo. Efficient imports autos like Datsun, Honda and Toyota swept in to fill consumer demand for more economical transportation. Homegrown solutions were way off the mark — Ford already had the heavy Pinto. I owned a 1974 Ford Mustang II — what a POS that was. Did they learn anything? Nope!
Today Ford, GM and Chrysler are caught with too many trucks and SUV’s in showrooms as sales of these segments decline in the double digits. Toyota has passed Ford for the #2 sales position in the U.S. Honda is set to pass Chrysler for #3.
Why does it matter? Well the auto industry is an important part of our national economy. Many thousands of workers build the cars and many others work for suppliers to the industry. Until we can shift these people to other jobs a large part of the economy depends upon all of us doing our part and buying a new vehicle. But with the new reality of $4/gallon +/- gas consumers are finally rejecting trucks and SUVs. Frankly the U.S. economy is to reliant upon sales of autos and of new mostly suburban homes.
For years the big 3 (GM, Ford, & Chrysler) have bought and rebadged efficient vehicles to meet demand. They’ve also revised their own models that were designed and sold in Europe and other countries where fuel efficiency has long been important. For much of the 1970s and 1980s Chrysler had a deal with Mitsubishi — my 1984 Dodge Colt was a rebadged Mitsubishi Mirage — it was also a great car. Ford brought us their German built Fiesta and later rebadged Kia’s. GM looked through products offered elsewhere and brought us Vauxhall Chevettes and today they sell the Aveo built by GM Daewoo in South Korea. The Pontiac Vibe is a rebadged version of the U.S.-built Toyota Matrix. Saturn’s Astra is a European Opal. For some reason these auto makers can’t manage to design and build a small & efficient car on our shores.
This year Daimler AG, maker of Mercedes vehicles, began importing the tiny French-built smart fortwo. It only holds two people while showing we don’t all need massive vehicles to get around.
According to fueleconomy.gov the Toyota Prius remains the most fuel efficient mass production car available to U.S. buyers. Meanwhile U.S. automakers were busy trying to prop up sales of trucks and SUVs with hybrid and flex fuel technology — so now thee vehicles just get poor mileage rather than abysmal.
U.S. auto buyers have fewer efficient choices than the rest of the world. We’ve been buying land yachts for so long now the auto makers don’t waste their time with more efficient and useful vehicles. Buyers in other markets, for example, can get a Honda Accord station wagon or a 4-door Civic with a hatchback Sedans we’ve got but a handy hatchback is a rare find.
For used car shoppers the prospects are even fewer. For those on limited budgets the big gas hogs often become the most affordable vehicles to purchase. Thus, those who can least afford the price of gas have the worst mileage.
Ideally we’d have such a great mass transit system we wouldn’t need private autos but the reality is our region is so spread out that we’ll never have such a system. As gas prices rise people will still have cars. I just hope our choices of cars improves.
“As GM goes so does America”. Enacted after the oil embargo in the mid 70s, CAFE standards have failed to keep up with the times. SUVs and trucks are largely exempt from the rules and individuals who believe that their well being is superior to general economic conditions rule. It’s therefore no surprise that GM’s stock is trading at a 26-year low on Friday and Ford is selling at the same price as it did in 1987. Myopic mindsets will create more unemployment, more noise, more pollution, more deaths…it’s already happening on a grand scale.
Going hand in hand with outmoded autos is the outdated methods of development still going strong from Waterloo, Illinois to Washington, Missouri. And while the auto industry will be forced to change quickly, our friends at MoDot and the big land developers will continue on their merry way. They are totally out of touch with the needs of the community.
In general it once again demonstrates how large scale capitalism is a failed system, the accumulation of baskets of money becomes so important that the needs of the market are not met.
The failure to respond to market forces by the auto industry is not surprising since they, along with other major contributors to political parties are able to circumvent market forces.
I do think that eventually mass transit will have to encompass the whole St. Louis region, it will mean billions of dollars redesigning movement systems and cities.
Even if by some miracle a suitable replacement for oil is found the colossal waste of resources will eventually trigger different urban forms and movement systems: capitalism is simply too inefficient of a system to tackle problems without the inclusion of the public interest.
“U.S. auto buyers have fewer efficient choices than the rest of the world.” Really??
Have a look at this new article on Wired, and then do a search on Autotrader for 2000-2004 Mitsubishi Lancers, or Honda Accords. I think you’ll be pleased with the results.
http://www.wired.com/science/planetearth/magazine/16-06/ff_heresies_09usedcars
According to the article, you can actually be much more carbon-efficient than you may have thought, if you just take into consideration exactly where the carbon is burned, w/r/t your “new” car.
That doesn’t solve the problem w/American car manufacturers having painted themselves into a corner, but American consumers do have options.
The auto industry is truly a global industry. Our “American” manufacturers are sourcing parts from around the world (for instance, GM V-6 engines from China) while “foreign” manufacturers are building plants and employing a growing number of “local” workers in the good old U S of A. GM is growing the Buick and Chevy brands around the world, selling models that are nothing like the ones they sell here. The two biggest differences between “us” and “them” are, yes, the product mix and the legacy costs of a highly-unionized domestic industry. You don’t have to be an American manufacturer to not succeed here – the most recent “foreign” casualty is Isuzu. In the recent past, we’ve also seen Daihatsu, Fiat, Alfa-Romeo, Opel and Renault all try to sell cars here and fail, just like those American guys that included AMC and Hudson, to name just two. The bottom line is that the marketplace is fickle, while the time it takes to change course/model mix takes years – guess right, and you’re a hero; guess wrong, and you lose money. Heck, even the geniuses at Toyota guessed wrong on the Tundra pickup – they built a new plant in San Antonio and can’t sell nearly the number of full-size pickups as they expected. Unfortunately, like the cliche says, you can lead a horse to water, but you can’t make him drink – smaller, smarter choices have been available for years, but the “average” American consumer overwhelmingly votes for style over common sense – why else would we have the Hummer as a stand-alone brand?!
I gave up on American cars 4 years ago after my 3rd GM car started falling apart at 80,000 miles again. It’s not the average union guys fault the cars suck. Really, it’s not. I just can’t keep giving my money to companies who trade on the American flag instead of good products. If every American really bought the best car for their $ they would almost always choose a German/Japanese/South Korean car. It would kill at least one of the “big three” but might actually force them to do something about their product lines.
My Mom (and maybe you or your family member) is also part of the problem. She buys big SUV/truck behemoths to be safe. She doesn’t care that it affects the safety of others who don’t have such large cars. Not her problem. She just wants something comfortable to drive to those far away shopping centers (that keep moving further away) and demands big highways to get her there. We pay (all of us) for highways, sewage, brand new underground electrical, phone and cable for these places further from the “city” so she can get away from other people and crime and inner suburban blight.
Sometimes I wonder if $8/gallon gas isn’t just what we need to change our direction in this country. Someday maybe we’ll stop sending billions of dollars to the Middle East, Venezuela, Russia and Nigeria. As was recently stated on a news program: “It wasn’t Reagan that brought down the Soviet Union. It was $15/barrel oil.”
In million barrels per day, the top producers:
Nation Net exports Production
World N/A 83[1]
Saudi Arabia 9.0 10.9
Russia 7.0 9.7
United States -12.2 5.4
Iran 2.721 4.259
China -3.7 3.8
Mexico 1.756 3.791
Canada 1.1 3.3
The big 3? We are down to the big 2. Dodge/Chrysler/Jeep are German brands. Historically U.S., but no more. Just because a car is built in an American plant by UAW workers does not make it American. There is so much ambiguity in the auto industry, it’s hard to keep it straights. Volvo, Jaguar, Mazda are Fords now. Saab’s GMs. Jeeps are Daimlers.
Back around the time of the first Gulf War, weren’t cars more fuel efficient than they are now? The old Geo Metro got ridiculous gas mileage, and I seem to remember other models performing quite well too without the help of hybrid technology. It’s kind of surprising to me that cars like the Yaris and Fit aren’t more fuel efficient than they are.
US automakers made more profit on the big pick-ups and SUVs. So they concentrated on that segment and forgot about the passenger cars. Then gas prices soared…
Since I remember the gas embargo, I’ve always been concerned with gas mileage. When car shopping recently, the salesman wanted to sell me a large SUV. They could make me such a good deal. I just wanted a vehicle with good gas mileage that could accomodate my dogs. Minivans and large SUVs were pushed by the salespeople. Finally I found one that fit my needs – a used VW Jetta wagon. I got a good price since no one wanted a station wagon.
I just ordered a 2009 ford escape hybrid; i’ll get it in october. There were no 2008’s to be found, and it appeared as though if i didn’t order an ’09, there wouldn’t be one left for me when they came out. With sales on these things the way they are, why is it that Ford continues to make so many excursions and not enough escape hybrids to meet demand?
I would’ve loved to have gotten a prius or something with even better gas mileage, but I’m 6’5″, with horrible back problems…as it is, the 98 honda accord is horribly uncomfortable. An SUV that gets 34mpg in the city (where i do most of my driving)…i can’t complain about that.
Getting your product mix right is about listening to your market. Gas prices started upward in 2005 with the Hurricane Katrina panic. They never really came down after that but we still didn’t change our behavior or purchasing. Still, auto manufacturers need to keep an eye on what is actually being purchased and requested for test drives to determine what their customers want. Yes, Americans are fickle, but the media has been full of clues and customers have been asking to test drive fuel efficient cars for over a year (typical product mix data period), and dealers STILL aren’t stocking enough of these cars on the lots. Every other industry is looking to be nimble and responsive but the auto industry has traditionally turned like a barge. I guess we should be glad they’re starting to pay attention, however late.
The auto industry has been stuck in a ‘Push based’ business model for decades. They built cars, pushed them on dealer lots and hoped that people would buy. This model worked when demand was higher than supply.
Today however, in the auto industry, the supply is much higher than demand. Customers are very selective and only buy cars that have the right features and attribute choices. The time has come for auto manufacturers to pay close attention to the attribute choices that customers make. These attributes are a signal of the market trends, and needs to drive what product mix dealers stock, and mix for new products.
In a capital intensive industry, this level of “buying signal” detail is mandatory for efficient resource and capital utilization.
An interesting article on how Toyota is doing in the market:Â http://www.post-gazette.com/pg/08150/885650-97.stm
Myopia leads to more layoffs: GM announced Thursday that about 19,000 hourly employees, or about a quarter of its U.S. blue-collar work force, will take buyout or early retirement offers, with most leaving the company by July 1. In 2006, about 34,400 workers accepted deals to leave the company.
I agree that we have only ourselves to blame. We are a spoiled self centered people when it comes to our autos. Spend a few months in Europe and you will find that there are cars that fit tall people and get very good mpg. We drove a Peugeot and it got about 50 mpg. Did it get to 60 in 6 seconds like people seem to want but never use? no, but by my seat of the pants guess it got there in about 11 seconds. Fine for getting on on-ramps and passing slow moving traffic. We never had a problem with feeling “slow” . One big difference i found in Europe is the range of optional engines they are offered. Here most American cars and even most Foreign makes you are offered only one or two choices. Usually a 4 cylinder and a 6 cylinder. In Europe you are offered a large number of engine choices. For example the Peugeot we drove was available with 5 different gas engines or three different diesel engines. Hopefully as gas prices go up, our auto makers will be flexible enough to make options available.
Carmax and other car dealers are selling suv at cost. Hybrid is in very high demand, however. Perhaps the high gas prices could have some advantage in that we will quicken our response for alternative fuel
Ford, the second- largest U.S. automaker said it will pare output by as much as 25 percent and delay unveiling the latest version of its top- selling vehicle, the F-Series pickup.
June auto sales in the U.S. may drop to 12.5 million, their lowest annualized rate in 15 years