The U.S. auto industry is in dire straits. Executives of the so-called Big Three are groveling for government funds. Chrysler is on the verge of vanishing entirely, General Motors is bleeding money across all its brands and Ford is seeking guaranteed credit lines from the U.S. government.
The U.S. auto industry was once the global standard of excellence, and exported its products all over the world. Now, its automakers get routinely outsold right here at home.
In 2008, U.S. sales of the Toyota Camry alone were higher than sales of all of Chrysler’s passenger cars combined.
What happened? The truncated version is that American makers depended on trucks and SUVs to make up far too much of their profit, since until recently they held a monopoly in this market segment. These vehicles got the majority of development and update resources while passenger cars received small updates to keep them barely competitive in the market.
Once gas prices started rising dramatically over the past few years, filling up the 30-gallon tank of an eight-passenger behemoth did not seem appealing anymore. SUV and truck sales nosedived.
The long-ignored passenger cars really weren’t all that appealing in a market filled with foreign models better in almost every way, and their sales stagnated. Between free-falling SUV and truck sales, and almost no growth in car sales, U.S. makers’ profits tanked.
The longer and more correct version has small fuel-efficient Japanese models making huge gains in the U.S. market following the 1970’s oil-crisis.
Throughout the 1980s, successive generations of cars from Japan were more suited to the tastes and needs of the American consumer. By the 1990s, Japanese makers were creeping closer to American makers’ sales figures.
Content with SUV and truck sales as described above, U.S. automakers did not see this as a serious threat to their profit statements, and did not significantly improve their passenger cars. Japanese companies, by contrast, continually improved their already successful models. The result was that most U.S. models were years behind the competition in refinement, design, and technology.
By the second half of the 1990s, Japanese cars began outselling comparable U.S. models for the first time. By about 2005, a handful of Japanese models dominated the passenger car market, while U.S. models were forced to compete by slashing prices. Add to this the cost-fueled drop in truck and SUV sales, and also the costs of providing benefits for an aging and retiring work force, and the Big Three were suddenly looking at very small – if any – profits.
Lately, the Big Three has become synonymous with Big Losses – in the billions of dollars.
It’s true that automakers all over the world are struggling, but very few companies are doing as badly as the Big Three. The good news – if you can call it that – is that the U.S. government will never let the Big Three fail in the true sense of the word. If the U.S. automakers close for business, millions of direct and dependent employees will be out of work, and the already gloomy economy will go into meltdown.
Golden opportunity
Thus, domestic automakers have on their hands a golden opportunity. Given the sad state of their affairs right now, there is little to lose by trying something new. Most of the domestic manufacturers have thankfully realized this, and are enacting what are, for them, groundbreaking policies.
Let’s look at General Motors. Long known for their broad portfolio of trucks and SUV’s, GM long ago squandered its once pre-eminent position in the car sector.
With the launch of the well-conceived and received 2008 Chevrolet Malibu, GM took the first tentative steps to being a serious player once again in the car segment. Given the current market aversion to large vehicles, GM has to succeed.
The company, with the aid of whatever the government throws its way, is also planning on doing what it should have 10 years ago: phase out its unprofitable brands – Saturn and Hummer. These brands also have very little history, compared to GM’s other nameplates.
By getting rid of the dead weight, GM can focus on its brands that actually make money and set rigid boundaries about what types of cars it sells under which brand name.
Cadillac remains the top luxury brand, Chevy is the entry brand, Buick occupies the middle ground and Pontiac will be a performance oriented, lower-volume brand. Concentrate on domestic brands to rebuild a domestic reputation.
For Chrysler, the case is simpler. First, find a European maker who’s wealthy enough to invest. Fiat is a good choice, since it wants to re-enter the U.S. market. Second, stop building ugly cars that don’t perform. Think more 300C and less Sebring.
Chrysler also owns Dodge and Jeep. The former is salvageable as a competitor if its passenger cars keep getting development funds. Given that Jeep only makes SUV’s, its future is tenuous at best. It has a proud heritage, but for the time being, maybe it should only make the perennial best-seller Wrangler for a few years.
Lastly, there is Ford.
Through better management and a more thought-out sales strategy, Ford is in a better position than GM and Chrysler. It, too, was a victim of owning too many brands that it couldn’t manage – it once owned Volvo, Aston Martin, Jaguar and Land Rover in addition to Ford/Lincoln/Mercury. Thankfully, Jag and Land Rover have been sold. Aston is partially sold, and Ford needs to sell off its remaining stake.
That cash can be used to keep improving the core units of Ford/Lincoln/Mercury.
If Ford can bring Lincoln up to snuff using the credit line it’s seeking from the government, and if it can stay away from poorly-planned and marketed disasters like the Ford Taurus X (don’t worry if you haven’t heard of it – that’s exactly my point), the House of Henry will be in decent shape.
The U.S. auto industry is feeling the combined effects of a global recession, high fuel prices, stiff competition and, of course, monumentally bad past planning and management. This period of turmoil is its one chance to put things back on the right track.
Executives are finally seeing the light, and doing what they should have done years ago. By focusing on core business units and focusing on quality and profitability in the passenger car segment, all three companies can become solidly profitable again.
On that hope rests the future livelihoods of millions of workers, their families, their children’s futures and the future of the U.S. economy.
-Munim Deen is a microbiology senior.
The Oklahoma Daily is pleased to provide you the opportunity to share your thoughts about this article. We encourage lively debate on the issues of the day, but we ask you refrain from using profanity or other offensive speech, engaging in personal attacks or name-calling, posting advertising, or straying from the topic at hand. To comment, you must be a registered user of OUDaily.com. Thanks for taking the time to offer your thoughts.
You must be logged in to leave a comment. Log in | Register
JWade 3 years, 2 months ago
Wow, who would have guessed that Munim Dean, microbiology senior, had the answer all along? I'm sure glad to have this cocksure and obviously accurate assessment on an issue from a real expert that has tirelessly read other people's terrible assessments and configured his own.
(I don't believe you.) ((Write something you know.))
JWade 3 years, 2 months ago
I'm so douchy.
My point is that it sucks to have to read the entire column just to confirm what my thoughts are the second I read the headlines for these high-falutin' columns.
Comment on things you can actually digest and then comment on - Bernanke can't even figure out what's really wrong with the economy.