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Spinning My Tires is one man's view of the world of cars. Random thoughts, ideas and comments pop up here, all of them related to owning, driving and restoring cars. I've been doing this car thing as long as I can remember, and have enjoyed a great many car-related experiences, some of which I hope to share with you here. And I always have an opinion one way or another. Enjoy. E-mails are welcomed--if you have thoughts of your own to share, please send them. Additional Spinning My Tires editorials can be found on the Archives page. 7/7/03 What The Heck Are They Thinking at GM? So I’d like to spend this column talking about the state of the current automotive industry, and the very big problems they’re facing. As I see it, the health of the automobile industry reflects the health of the economy, and as you know, if the economy is hurting, the old car hobby is hurting. The grossest offender these days is General Motors, though virtually every company (with a few notable exceptions, as we’ll see) is guilty of the crime. General Motors jump-started the economy after 9/11 with 0% financing. It was the right idea at the right time. Unfortunately, they became addicted to the immediate sales boost it produced, and didn’t look at the long-term effects it might have. I’m not an economist or an expert industry analyst, but even I can see that everyone who was even thinking about buying a car bought one with these deals. And that’s crux of the problem. That short-term brilliance has turned into a long-term survival strategy that will doom GM to failure in the foreseeable future. Don’t believe me? Think about these points that I’ve come up with: First, GM has sacrificed future sales for market share today. They’re not making any money with 0% financing and multi-thousand dollar rebates on the cars and trucks they’re building—GMAC has been the only place they’ve consistently made money over the past decade. Trucks are their only reliable profit center, and competition there is only going to get fiercer in the next few months (more on that in a moment). Luxury trucks are big money makers at the moment, but even that market is cooling down as the US becomes more aware of world opinion of us as gross gluttons and it’s embarrassing. The bling-bling guys and the pro athletes will still buy them of course, but for the most part, Middle America is going to start moving away from these 7000-pound grocery-getters and into more reasonable transportation that truly represents their needs. Those vehicles are coming, make no mistake, but by then, it might just be too late. Believing that the SUV gravy train was going to go on forever was so stupid, even my 8-year-old niece figured it out about the time gas crossed the $1.75/gallon barrier. Which brings me to my second point: by the time all these new products (some of which may be truly great vehicles) get to market, everyone who was even thinking about buying a new car already has one thanks to the 0% financing and $4000 rebates. When these new products hit the streets, the customers they expect to have are going to be so upside down with their 0% loans on crappy cars that now have exactly zero resale value that sales will not even come close to meeting projections. We’re already seeing some of this right now, with inventory on dealer lots stacking up far faster than they’re selling, and used cars becoming virtually worthless. They have to keep those factories running no matter what the cost, even if there are no customers. This won’t change after they invest billions on new tooling and equipment for new products. So this is problem number one: Where will the customers come from now that they’ve sacrificed those sales to short-term market share gains? Problem number two is competition. It’s no secret that trucks are about the only place where domestic automakers earn any money. It’s just simple economies of scale—build a hundred million of something and your per-unit cost drops dramatically. But now the Japanese are muscling into the territory that the domestics never even thought of protecting. Just like you saw in the late ‘70s, the Japanese are doing it better and offering more bang-for-the-buck compared to the domestics. If GM isn’t worried, then they haven’t learned a thing from the butt-whuppin’ Japan put on them twenty years ago. You don’t see Toyota offering rebates or cheap financing—they don’t have to. Their products represent value and they are products that people want to buy. They are priced they way they should be, and don’t need built-in rebates figured into the financials at vehicle launches. People buy cars that represent good value for the dollar. What does it say to you that GM has to price their stuff at least 20% less than the competition just to get it off the showroom floor? And that’s directly related to the third, and potentially the biggest, problem they have: where will future customers come from? Most people who buy imports won’t even consider going into a domestic showroom. Guys who drive Fords won’t ever drive Chevys and vice-versa. But sooner or later, they’ll all try out an import and it’ll change their views on what they drive dramatically (my toys are domestic, but my daily drivers are Mazdas—and I’m as big a patriot as you’ll find, just not a financially stupid one). And if GM thinks it can hit the Previous Customer Mines again, they’d better re-think this whole “Road to Redemption” ad campaign they’ve been running for the past month or two. Basically, it’s a TV and print admission from General Motors saying that, yes, the cars they built over the past twenty years have been really, really crappy. Even the company that made the cars knows they were junk! And they’re admitting it! It was no secret to the rest of the world, of course, but to have a company come out and admit to their shoddy business practices and poor product is tantamount to market suicide. After hearing this, would you, the unfortunate owner of one of these pieces of junk, give GM another crack at your wallet? Probably not. Admitting mistakes in your personal life is the sign of being a stand-up person with integrity. Doing it as the biggest car company in the world is just stupid. People won’t come back to get burned a second time, GM. Sorry. Those who do come back, and those that are wooed into the GM fold from other manufacturers, unfortunately won’t be the customers GM wants. Because of their long-term addiction to rebates and incentives, nobody will ever again pay sticker price for a GM product. Would you? Heck no—when you look at a GM car today, you automatically take $2000 right off the top before you even start negotiations with the salesperson. That won’t change in the future, no matter how good their products might be. GM is the house of the cut-rate bargain, and it is going to take years to convince the public otherwise. GM faces a double-edged sword: now great product just isn’t enough for them. It’s enough for Honda and Toyota, because they aren’t known as discounters and their cars represent good value for the money and the public knows it. But we’ve been blitzed with these deals and rebates for so long that nobody will ever think that a GM car can cost as much as or more than its competition. Nobody will buy a GM car without getting a “deal” right off the bat. Again I ask: would you buy a new Pontiac Grand Prix which stickers at about the same level as a BMW 3-series or an Audi A4 or even a Lexus IS300? Would you even add it to your shopping list without knowing that you’ll be getting a big, fat deal from GM that undercuts their prices by thousands? Would you even consider it in the same league as those cars? GM thinks you should. That’s exactly the problem. So GM (and Ford is guilty of this, too, but to a far lesser extent) is going to start hurting, badly, right at the time that it most desperately needs a financial shot in the arm (I’m guessing it’ll all happen about the time we’re trying to elect a new President). They’re investing now for a payoff that may never come, and it’ll hurt all of us in America. So many jobs, so much industry, so many communities rely on the auto companies for so many things that when they hurt, it hurts a lot of people. And these are the people who are in our hobby, who sell us our parts, who paint our fenders, who sponsor our shows. These people are you and suddenly you can’t afford that new interior or that next project car you’ve been dreaming of. Now you’re worried about your home and your family and your job instead. I know I’m worried, because a company whose biggest customer is General Motors signs my paycheck. And when GM hurts, America hurts. I’ve never wanted to be wrong so badly in my life. See you next month. E-mail me at toolman8@sbcglobal.net This page accessed Thanks, Fidget! |