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General News    H3'ed 12/3/08

The Big Three: Completely transform itself or go the way of the Edsel

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Message Michael Payne
The US Congress recently tabled the request for $25 Billion by GM, Ford and Chrysler executives to bail them out of their current crisis and avoid bankruptcy. The Big Three executives were very clear in stating what they wanted in their presentation, but their case lacked just one element; they wanted the money all right, but they failed to present any plan for how these bailout funds would be used to restructure their organizations. No plan designed to breathe new life, new ideas, and innovative manufacturing, marketing and engineering techniques into their operations. If the American auto industry, centered in Detroit, cannot completely transform itself from its current dinosaur-like image to one that has a vision for what America needs from it, then it will go the way of the infamous Edsel and it also will be a thing of the past. Most Americans can't remember much about the Edsel, the auto that Ford Motor Co. designed to take America by storm. Tbe Edsel, born in 1957, died in 1960, as this albatross of a vehicle failed to even begin to excite the American public. And right now, GM, Ford and Chrysler are exciting neither the American people nor the Congress. So, we witness the US Congress, not known for its planning and execution of new visions for America, demanding that the American auto industry, also not known for its planning and execution of new visions, must devise a specific plan that outlines exactly how it will spend the $25 billion – or there will be no bailout and Detroit can just go into bankruptcy. In this current crisis, Congress, often prone to vacillation, must demand absolute change by this rapidly failing auto industry, once the pillar of US manufacturing. How Detroit went from the world leader in auto manufacturing to the current escalating crisis is a classic case study of marketing failure. For much of the second half of the 20th century, General Motors was composed of the Buick, Chevrolet, Pontiac, Cadillac, and Oldsmobile divisions. And what was one of their major marketing strategies? In the 1980's, GM used a strategy referred to as "rebadging" whereby one division's popular vehicle design was incorporated into very similar vehicles in the other divisions. The result was that the divisions were competing with each other for the same potential buyers, clearly a self-defeating strategy. These autos were all so similar, sharing designs, engine types, and many of the same components. So GM benefited from the economy of scale from all this sharing. But at the same time it did not seem to understand that it was offering the American buyer an array of cars that had a common identity, not distinctly different identities with special appeals. This was a horizontal form of marketing. Now let's contrast this marketing strategy with that of Honda, Toyota and other foreign manufacturers. They took an entirely different direction to attract buyers. Instead of a horizontal strategy they used their tried and true vertical strategy. Honda had the Accord, the Civic and other offerings, none of which were similar and none competed with the other. Toyota had the Camry, the Corolla and other models that were marketed to different segments of the America public. Could it be any more clear that the horizontal strategy completely failed and the vertical strategy was wildly successful? One other critically important distinction between Detroit and the imports was the priority that each gave to gasoline mileage. For many years the Big Three and their powerful lobbyists in Washington DC fought all attempts to impose CAFÉ standards, designed to increase fuel mileage upon them, and they were very successful. The US Congress did not have the spine to force change upon them at that time. Detroit concentrated design and production on pickup trucks, large, gas-guzzling SUV's, and other larger autos, and very little on development of smaller, more fuel efficient cars. The imports, mostly Japanese, took the opposite view. They started off with only smaller, very fuel efficient cars, gained a large, growing share of the market and then they did offer other some larger cars, vans, pickups and SUV's to have a complete offering to buyers. But they never did deviate from their core foundation of sales, which emphasized quality and fuel efficiency, rather than overly large, gas hogs. And that is the strategy that has now resulted in making them the emerging force in auto sales, while the Big Three are hanging on the ropes and begging Congress for a handout – and Congress is saying, show us your specific plan or we will not show you the money. Now, the US Congress has sent the chief executives of the Big Three back to Detroit to formulate a new business plan. Hopefully these executives now clearly understand that to get any bailout they must show exactly what they are going to do differently from a manufacturing, marketing and labor relations aspect. No more "same old same old", not this time. What they come up with is anybody's guess but here is what I suggest that they must do or they will not be "shown the money": Never, ever produce another monstrous SUV. Convert some of the SUV plants to produce only mid-size, compact, hybrid and electric cars and close others as necessary. And that example of hubris and arrogance, the Hummer, should follow the Edsel into total oblivion. Detroit must downsize to save itself. In the future, smaller will be better. The American auto industry has a chance to seize the moment by becoming a model and a leading force in the next administration's ambitious plans to reduce our dependence on imported oil. Congress should set up very aggressive CAFE (corporate average fuel economy) standards that dictate the average mileage that various classes of vehicles within each manufacturer must achieve. The auto industry and their army of lobbyist – and too many of our elected representatives in Congress - have been fighting against the imposition of strict, higher standards for years. Any bailout must include an agreement by these automakers to accept and then take bold steps to meet new, badly needed standards. They must be given no choice in this matter. Production of V-8 engines must be restricted to only those vehicles used in the service, manufacturing, government and other sectors where this type of power is a must. That would be in pickups and other types of trucks that must have them. No more V-8's for family-type vehicles, whether the public still wants to be hooked on them or not. V-6 and 4-cylinder engines provide plenty of power for our everyday vehicles. Sure the labor unions have given concessions to management any number of times but it has not been enough to close the hourly labor advantage that the imports hold. These imports, with Honda and Toyota as the frontrunners, are currently producing autos at between $25 and $30 per hour less than Detroit, a staggering difference. It is just this simple. If Detroit and their unions cannot or will not go all out to close this gap, they will never be competitive and this industry will disintegrate. So, like it or not and no matter how painful, there must be more labor concessions or neither a bailout nor bankruptcy will save this industry. And speaking of concessions? Executive salaries and bonuses must be capped. Those greedy fat cats can no longer manipulate their corporations by demanding higher and higher salaries and ludicrous bonuses. Congress must come up with a formula to cap this compensation and impose it whether the executives like it or not. In a situation where these companies are literally hemorrhaging, there is no room for any more of this shameful, misguided practice that rewards incompetence and failure by throwing more and more money at those who are the root of the problem. So the financial meltdown on Wall St. continues, Americans are losing their jobs and their life savings, this US Congress takes yet another break, and the Big Three executives slink back to their collapsing corporations. Let's all fasten our safety belts and hope that in early December when the Congress reviews the business plan that the Big Three proposes, that these two parties can agree on a settlement that will take this industry into a new, revolutionary direction for the good of our nation. This auto industry crisis is a classic example of what President-elect Obama has been calling for in changing America. The Big Three is at the threshold of disaster; it must change or it will die. This Congress too often has not been up to its job of acting in the best interests of the country. Now it is time for both to work together and bring real change to a festering situation. Change must happen, they must not fail.


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