The March 23 Los Angeles Times editorial ‘You can depend on Detroit” hits the mark; today’s auto industry is a tremendously competitive place. Consumers can now choose cars and trucks from domestic (Detroit) automakers that match the quality and reliability of vehicles from Japanese or European makers. So why won’t Americans buy American cars?
Buyers have long memories. In the late ’70s through the early ’90s American manufacturers dropped the ball in product quality, reliability and customer service. While those problems have largely been corrected, the stark reality is that many people were burned during those years and they will forever be biased against the Detroit Big Three. Parents have influenced their children. Friends have influenced neighbors. Worrisome for the domestic makers, many Americans today have never, never owned an American car. They have no point of reference or familiarity with today’s domestic offerings.
During the auto industry bailout testimony by the Detroit Big Three, Senator after Congressman castigated the DB3 management for selling vehicles Americans did not want to buy. Based on AutoPacific research, it is the government officials who are out of touch with today’s reality, not the U.S. automakers. In fact, in AutoPacific’s most recent research with owners of new cars and trucks, and echoed by other automotive researchers, both General Motors and Ford Motor Company products won more than their fair share of awards for satisfying their customers and developing vehicles ideal for their target customers.
Lexus builds outstanding vehicles supported by a great dealership experience. But its position atop durability studies is not unassailable. Today, American consumers have terrific choices – foreign AND domestic.
Atomization Causes Car Makers to Lose, Not Gain, Focus
Definition of Atomization: Adding new, incremental car and light truck nameplates to more accurately hit customer target needs, wants and desires, resulting in increased overall sales.
Over the past decade, AutoPacific has been monitoring and evaluating the impact and rationale behind the automotive industry’s rampant atomization. With annual industry sales in the 16- to 17-million unit range, it appeared that carmakers could profitably continue to add models more closely targeted to specific buyers–if they could keep development costs, manufacturing costs and marketing costs in line. In other words, carmakers needed to make a profit while selling a lower volume of cars or trucks per nameplate. Since 2004, we have cautioned that atomization was shifting the battleground from product development to product marketing.
With 2007 showing more models and fewer industry sales, the industry became unstable. By the end of 2008, with the industry selling at a 10-million per year rate, sales per nameplate cratered. 2009 promises to be even more dire.
Background: More and more new car and light truck models are being added to manufacturer lineups each year, the phenomenon AutoPacific defines as atomization. This rapid addition of nameplates to the American auto industry is a result of auto product strategists and marketers attempting to provide products targeted at much more finely defined product niches. Consumers prefer more and more focused products, and today’s automotive consumer research can identify exactly what those consumers want. Current product development techniques allow vehicles to be developed more quickly and efficiently than in the past. The conclusion has been to develop a vehicle targeted at each identified buyer group.
The risks in adopting this strategy are numerous, chief among them making profitability much more difficult to achieve. When sales of cars and light trucks remain constant and the number of models increases, the sales per nameplate must decrease. This means a vehicle has to be profitable at a lower volume. In down sales years, like 2007 and 2008, sales per nameplate drop precipitously and profitability becomes nearly impossible.
AutoPacific’s Industry Analysis office shows that 2008 was the worst year in decades for sales per nameplate and 2009 promises to be worse. Why should manufacturers care about sales per nameplate? Higher sales per nameplate usually mean that the vehicle is popular and profitable. Lower sales per nameplate often indicate the vehicle is struggling to sell manufacturer projected volumes and grasping at profitability. Industry-wide, in 2008 nearly every nameplate saw lower sales and presumably lower profits.
At the previous industry peak, in 2000 when sales hit 17.3 million units, there were 208 car and light-truck nameplates sold in the United States. This indicated an average volume of slightly more than 83,000 units per nameplate. In 2008, when sales were 13.2 million units, there were 285 nameplates, dropping the average volume to only 46,300 units sold per nameplate. This was a whopping 36,700-unit deterioration (~44%) in the sales volume per nameplate. In just one year – from the end of 2007 through 2008 – sales per nameplate fell over 10,000 units.
In 2008 sales volume in 2008 fell dramatically. In the first half of 2008, spiking fuel prices drove buyers away from high-profit pickup trucks and traditional sport utility vehicles. These were followed by housing, stock market and credit crises. By mid-September there was a belated recognition that the United States has been in a recession since December 2007. These factors led to sales slowing to a trickle from September 15 through the end of 2008.
In the past, the industry grew dependent on sales driven by desire – emotion. Today, most new vehicle buyers buy out of necessity. Their old car needs too many repairs to keep running. Their old car has too many miles on it. They need a vehicle that gets better fuel economy. Their old car was stolen.
During the 1990s, a good year for car and light truck sales was 15 million units. By early in the first decade of the 2000s, growing use of incentives caused the industry to expect 17 million sales per year. Companies began adding more and more nameplates to take advantage of these robust sales numbers and to target their customers more closely. But while more nameplates were being added, the market softened. Many models were left exposed to lower demand, and at a time when marketing dollars for incentives and advertising also dried out.
Future Viability May Depend on Surgically Removing Nameplates: As sales per nameplate in 2009 are projected to fall precipitously at forecast sales levels (11.5-million units), manufacturers must attack their offerings to maintain viable and profitable sales for each nameplate. Using a simplistic method of dropping nameplates and losing ALL their volume, for General Motors to get its sales per nameplate back to healthy levels they would have to drop 23 nameplates and 4 brands. Chrysler would have to drop one brand and at least 5 nameplates. More on that later.
This analysis is simplistic but leads to very rational conclusions…
Conclusion #1: There is a strong correlation between sales per nameplate and profitability. With the exception of premium luxury brands, those manufacturers with higher sales per nameplate tend to be more profitable and viable. While the era of pursuing every niche was exciting and might have been supportable in a 16-million to 17-million sales year, it is very, very tough to feed niche models in soft sales years like 2008 and 2009.
Conclusion #2: The customer rarely benefits from additional models. Many badge-engineered models do not result in enough incremental sales to justify their existence. So, why do they exist? These redundant badge-engineered vehicles exist to populate the sales lots of dealers who are themselves no longer necessary. Think Chevrolet Cobalt and Pontiac G5; Ford Fusion and Mercury Milan; Chrysler Sebring and Dodge Avenger.
Conclusion #3: Reducing nameplates means reducing brands (among the Detroit Big Three). Reducing nameplates means eliminating dealers. Both require a serious reorganization of the DB3 including eliminating nameplates, reducing the number of dealers, eliminating assembly capacity, reducing hourly and salaried headcount, restructuring union wage agreements. These actions likely cannot happen without bankruptcy of one or more of the DB3. Since “bankruptcy” is such a taboo word in Detroit perhaps the Car Czar can be given bankruptcy-like powers to be able to implement the necessary actions without referring to those actions as a “bankruptcy”.
Conclusion #4: These reductions WILL happen over time. The MARKET WILL force it. The very viability of the Detroit Big 3 is at stake.
With two new and important full-size pickup trucks this fall, at a time of extreme economic uncertainty, what do we see happening to the market in general? And how does the F-150 stack up against the Ram? Since our correspondent Jim Hossack attended both Ford and Ram driving previews, we asked him for some comments. Here we go!
2009 Ford F-150 XLT
What’s happening in the Full-Size Light Duty Pickup market?
Contrary to mass media reports, the full-size light duty pickup market is not dead. In fact, after a few tough months, it is coming back – in terms of share of industry if not actual number of units sold.
The auto industry is down by around 4 million units compared with 2007CY. Full-size pickup share of industry fell from 15.2 percent in August 2007 to as low as 8.6 percent on May 2008, but has rebounded to 15.8 percent in September 2008. In part that may be a reaction to fuel prices, which increased and then decreased, in part it a recent compensation for deferred purchases earlier this summer, and in part due to ridiculously low transaction prices as Dodge and Ford clear out showrooms of the old trucks. It is also worthwhile to remember that holding onto 15.8 percent of a much smaller market still means a dramatic decrease in overall F-150 sales. If and when the economy recovers, half-ton pickup sales volume will recover, depending on how drastic the next fuel price spike is.
2009 Dodge Ram Sport
2008 Promises to be Recent Low in New Vehicle Sales
Economic Doldrums – Short Term
At a recent meeting I was giving a presentation on the State of the Automotive Industry (SOI) in the United States. The SOI includes information on consumer expectations, state of the economy, the growth in nameplates and AutoPacific’s forecast for the industry through 2013. Clearly, the industry is in the dumps in 2008 with sales being forecast to be 15.8-million units. Sales could even be lower with the first two months coming in at a rate of about 15.2-million units.
Record Sales Years on the Horizon
So, in light of this Annis Horribilis (quoting Queen Elizabeth in 1997 “Horrible Year”), the AutoPacific forecast for light vehicle sales going forward peaks at about 18-million units in 2013. That’s after three years when overall sales are higher than the previous 2000 record of 17.3-million units.
Several things are keeping sales depressed right now. The sub-prime mess, credit crisis, devaluation of the dollar, slow down in housing, high fuel prices, etc. All negatively impact sales and consumer confidence in wanting to acquire a new vehicle. These issues impact brands and vehicle classes and vehicle lines differently. For instance, full size pickups are hurt because commercial users defer purchases until the housing sector picks again and retail users who have primarily been buying big pickups for personal use can decide not to buy a new one or add one to their family fleets. The dynamics are really churning.
However, the factors stressing out the economy are generally cyclical and right themselves over time.
GenY to the Rescue
But the ace in the hole, as the economy bounces back, is the emergence of Generation Y (Those car buyers who today are 18 to 30 years of age). GenY is the largest population cohort – equaling or surpassing the Boomer generation (43 – 61). They are just now getting into their vehicle acquisition and family formation years, so they will stimulate sales. At the same time, Boomers are not going quietly into the night. They will continue buying new vehicles well after retirement. So, demographic shifts will provide much of the push for higher sales going forward.
Don Esmond at Toyota has said a 20,000,000 unit year by the middle of the next decade would not be surprising. Don’t know about 20,000,000, but 18-million does seem possible.
This has nothing to do with cars or trucks, but about the halftime shows shown at extravaganzas like the Super Bowl and BCS Championship Game. Our stories about auto company and Bridgestone ads stimulated the idea.
Pageant Bands – Easier than Military:
Super Bowl Halftime Lame – Bring On the Marching Bands
I don’t know how much Tom Petty cost to entertain the nation for twenty minutes, but it was too much. And it’s not that I don’t like Tom Petty. I have just gotten sick of these extravaganza halftime shows that Bowl Games think are necessary to put on while people are getting their snacks and going to the john. At least Petty did not have a wardrobe malfunction and the manufactured crowd was on their best behavior – young and energetic.
God Wants Marching Bands: But, God intended for football halftime shows to feature marching bands. Not Tom Petty. Not Janet Jackaon. From time immemorial, marching bands have been featured at every high school and college game. Some bands are military bands. Some are pageant bands. Some do a little of both.
Military Bands – Precision and Discipline: The military bands have the toughest job. They will have an eight minute drill in which they continuously change formation from one geometric pattern to another. Countermarches. Minstrel turns. Freeze steps. Parallelograms. Squares. All precisely designed to amaze the audience. Texas A&M is a rare example of a military band. I say rare, because a military band takes a lot of practice to make look good. Lines have to be straight. Timing has to be perfect and the music has to be great. Takes a huge amount of discipline.
The pageant bands may begin a show with a military fanfare, but then evolve into designs and pictures that usually have the band members wandering from one spot to another. Much more chaotic than military bands. But the fans seem to like them and it’s easier to train a pageant band than a military band.
National Band Contest:
So, here’s the idea. Scrap these halftime concerts and have a national band contest. The national band contest would end at the Super Bowl where the best high school marching band in the country would go against the best university marching band in the country. I guess you could have military and pageant band sections. The university bands would be judged by conference – an ACC Champ, a Big Ten Champ, a Pac Ten Champ, etc. Then at the national championship game – the BCS game, the best college band would be selected. High schools would be selected on a state-by-state basis with state winners moving to regional, sectional and, finally, national.
Still have to find a way to judge military bands vs. pageant bands, but there must be a way. Just find a way to get us away from the terrible halftime shows the BCS and Super Bowl have subjected us to for the past decades.
DISCLAIMER: VehicleVoice is totally non-denominational and takes an agnostic, i.e. non-biased, approach to analytical issues. This summary details the position published by the Catholic Church on June 19, 2007.
Pastoral Care of Road Users
The Holy See of the Catholic Church in the Vatican has issued a “DOCUMENT OF THE PONTIFICAL COUNCIL FOR THE PASTORAL CARE OF MIGRANTS AND ITINERANT PEOPLE: GUIDELINES FOR THE PASTORAL CARE OF THE ROAD”. Part of this document are the Ten Commandments for Road Users included in “The Pastoral Care of Road Users”. Other sections include: “Pastoral Ministry for the Liberation of Street Women”, “Pastoral Care of Street Children”, and “Pastoral Care of the Homeless (Tramps)”.
After hearing about the new Ten Commandments for Road Users, we decided to find out exactly what was included and how the Vatican rationalized developing this document. Visiting the Vatican website provides a comprehensive summary of the document and the rationale the Vatican used when developing it. Perhaps the most interesting part of the rationale is that the Church intends to evangelize the issue of the Ten Commandments for Road Users and Road Safety. It’ll be interesting to see how much traction this document achieves internationally and what impact it, indeed, has with driving, drivers, and pedestrians.
Drivers’ “Ten Commandments”
The Vatican document states “We have drawn up a special “decalogue” for road users, in analogy with the Lord’s Ten Commandments. These are stated here below, as indications, considering that they may also be formulated differently.” The fact that the Vatican saw fit to issue a document like this = the whole thing is very comprehensive – is an indication that the Church believes the roads may be getting a bit out of control. Even though this is an “international” document, it likely has a slight “Italian” spin. Now, how in control is traffic in Italy?
I. You shall not kill.
II. The road shall be for you a means of communion between people and not of mortal harm.
III. Courtesy, uprightness and prudence will help you deal with unforeseen events.
IV. Be charitable and help your neighbour in need, especially victims of accidents.
V. Cars shall not be for you an expression of power and domination, and an occasion of sin.
VI. Charitably convince the young and not so young not to drive when they are not in a fitting condition to do so.
VII. Support the families of accident victims.
VIII. Bring guilty motorists and their victims together, at the appropriate time, so that they can undergo the liberating experience of forgiveness.
IX. On the road, protect the more vulnerable party.
X. Feel responsible towards others.
The rationale given for the document by the Vatican is shown below the fold.
Chrysler is Back in Private, American Hands; Current Management Stays On
On Monday, May 14, DaimlerChrysler and Cerberus announced the pending sale of the Chrysler Group, including Chrysler Financial. Among the firestorm of conferences, board meetings, and announcements following, we attended a Chrysler press conference where the new Chrysler Corporation boss Tom LaSorda gave a short briefing and took some direct questions.
Perhaps the most significant element of the change in ownership is not who makes up the management team, or even in which country home base now is. It isn’t whether or not Wolfgang Bernhard returns to Chrysler, or even who is the boss. It is that the new company is privately held.
The new Chrysler Corporation is not required to report quarterly (or annual) sales, profits, returns, management salaries, production, or most of the other indicators that Wall Street watches so closely. The negative of quarter-by-quarter reporting and evaluation is a tendency to think short term, which can be deadly for a business whose core products have a four- to six-year natural lifecycle. (Including LaSorda’s and other managers’ salaries, which he seemed nearly gleeful that he’ll no longer report.) When pressed, LaSorda cited short-term focus as the driver for the ill-fated sales bank strategy, and as something done to please the German bosses and done against long-term strategy and goals. As a private company, LaSorda says, they “will be able to run it as we want, without worrying about quarterly numbers and what people think of them.” Chrysler Corporation will not report quarterly earnings (nor management salaries/benefits), and LaSorda would not commit to continued reporting of monthly unit sales.
LaSorda expects a Cerberus to demand a similar level of governance than they are used to, and they will have to ultimately make money for them. They will also need, as LaSorda recognized, to clearly define goals and metrics for employees to be able to target and meet. But these elements need not be part of the public forum or debate, and ownership support for long-term over short-term objectives can significantly impact overall strategy.
LaSorda was clear and emphatic that the Chrysler Corporation’s management team will not change from that today at the Chrysler Group. No further job cuts are planned as a result of the new ownership, but the 13,000 cuts spelled out in February are still on the chopping block. Speculation will continue as to whether or not Wolfgang Bernhard is brought aboard again, but plans to make that change were vehemently denied.
In early December, Ford hosted an event that allowed VehicleVoice and AutoPacific staffers to peek into the future for Ford, Mercury and Lincoln vehicles. One of the more intriguing presentations had to do with the future design direction of their Lincoln brand.
Cue 7: Grille –
Peter Horbury, a Brit credited with launching Volvo’s distinctive styling and now Ford’s North American styling chief, discussed the results of a design analysis of Lincoln’s heritage design cues. After evaluating coveted Lincolns from the past, the Lincoln design language was distilled into seven distinctive cues. The Lincoln MKR Concept Car seen at the 2007 North American Auto Show is the first vehicle to use all seven of the cues. In the future, every new Lincoln will incorporate at least three of these seven cues.
Based on the styling of the MKR, if Ford does indeed launch Lincolns using these design cues, they may have real winners on their hands. Now, can Alan Mulally find the money to bring these vehicles to market as quickly as they are needed?
Lincoln cars will have a distinctive split grille opening. There are several variations on this theme, each with a different grille texture. But Lincoln designers have evolved a face that at-a-glance will be identifiable as a Lincoln.
Cue 6: Cantrail –
OK, we had never heard this term before either (it appears to be a terms used in railway car design), but this is the intersection point between the A-Pillar and the Roof. To convey an impression of strength, Lincolns will have a strong Cantrail.
Cue 5: Bodyside –
Taking a cue from the famous Lincolns of the ’60s, ’70s and early ’80s, Lincolns will have a clean, uncluttered bodyside. This not the vertical slab sides seen on these earlier Lincolns, but can have some curvature in it.
Cue 4: Beltline –
Lincolns of old had relatively straight beltlines sometimes with a slight hop-up over the rear fender. This strong beltline often was topped with a chrome molding. Lincoln’s modern interpretation shows a more muscular haunch than on previous Lincolns.
Cue 3: Chamfer –
Adding to the strong beltline is a break-line in the beltline surface aft of the front doors. This contributes to the muscular haunch idea.
Cue 2: C-Pillar –
Lincolns have had a wide C-Pillar that projects a very strong, upscale image. This strong C-Pillar can be used in cars, crossovers or traditional SUVs.
Cue 1: Taillamps –
A major identifying design cue for Lincoln is a distinctive taillamp design. Usually this has been a wall-to-wall design as seen on the Mark VIII.
More details on Lincoln’s design cues can be seen below the fold.
Happy New Year!!
Happy New Year
from your automotive news and research providers at VehicleVoice and AutoPacific. We are looking forward to giving you even better car, truck, and industry coverage in 2007. There will be even more opportunities for you to express your opinions on automotive topics through VehicleVoice surveys.
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AutoPacific’s signature image is an original work by Robert Blumhagen in Orange County California. Robert calls his style “California Realism” and that certainly is the case with the great paintings he has done over the years.
This classic Hudson conveys AutoPacific’s love for all things automotive from yesterday, to today, to the future.