Sunday, December 12, 2010

Here's What Happens When We Let Government Run The Auto Industry

From Sam Barer's Four Wheel Drift:

The Depressing Reality Of Camaro Production Numbers

GM delivered 46,378 new Camaros to dealers between January and June 2010. A darling of automotive press since the announcement of its return, the Camaro has actually turned out to be another case example, along with the Ford Mustang and Dodge Challenger, of how going retro is a really bad business decision.

The Camaro is a good performer on the road, but it isn’t from a business standpoint — although you’d never know by reading the mainstream and enthusiast automotive publications. Analyze the production and sales reports and compare to historical figures, though, and it becomes very clear.

The last generation Camaro’s final year was 2002. That year 42,098 units were produced during the entire run. While it might initially seem like the current Camaro is twice as successful, readers must keep in mind that the elder Camaro had to compete against its F-body fraternal twin, the Pontiac Firebird, of which 30,690 units were produced. The whole F-body car program had been slated for the buzzsaw years before, so production and sales in 2002 was done with minimal marketing support.

The current Camaro team has leveraged hundreds of millions of dollars in marketing and pr, plus additional hundreds of millions in product development…not to mention placement in seemingly every major automotive magazine each month for over a year. Still, the current Camaro is only 9,984 units ahead at the six-month point (on pace for 19,968 additional annual units) than the last gasp of the F-body car line killed for its poor sales. Even worse, in 1997 with a sagging coupe market (remember this is the era when the RX-7 and Supra left the American market?) and a four-year-old body style, the Camaro alone logged 95,812 delivery units, not to mention an additional 30,754 Firebirds over at Pontiac.

It is also safe to expect that four years into the new Camaro’s life, production figures will mostly likely amplify the failures of its product plan. Analysis of sales and production results from all manufacturers conclude that a retro car’s product lifecycle is much shorter, because the look appeals to fewer people as the novelty value wears quickly.

Meanwhile Honda logged 133,601 deliveries through June (on pace to 267K-plus annual units) of the real modern interpretation of the original low-buck, high-fun pony car for early-twentysomethings, the Civic. Hopefully Honda’s executive team in 2050 doesn’t pull a GM — or Ford, for that matter, and build cars that look like the 2010 Civic, because that’s what looks good to the 65-year-old executives, rather than the product’s actual target market.


Sam said...

As the author of the above post, I feel the need for a little hand-slapping. The use of the title "Here's What Happens When We Let Government Run The Auto Industry" on this article is misleading...and really factually incorrect given the content.

The current-generation Camaro project was years in the making before the government bailout. This is more the case of what types of business decisions led GM to feel it needed a government bailout.

And though I have long been a vocal force of opposition to the bailout of GM by the government (with stories in print and appearances on radio news on the topic), there is really very little that the US government has done to "run the auto industry." The influence of the government has been limited to financial issues, a small number of (like two) high-profile executive position decisions, and international partnership contracts.

Product decisions, however, have been left to the companies. Government influences have stretched only as far as they have since the 1960s and 1970s -- CAFE standards, safety requirements, incentives (rebates and tax credits) on certain types of manufacturing and product deliverables.

In the end, I'll still argue GM could have reached the same milestones without the help of a bailout by the government. Blaming the Obama administration or Congress for the Camaro's business results, however, simply shows the person who used my original article on this site has little understanding of the issues.

McGruff said...


Since you are not a follower of my posts I can see how you reached your conclusion.

Money runs everything including the continuation of product development and product promotion. I agree that GM management was the core problem, however I also feel government intervention of this magnitude was unnecessary.

I strongly disagree that the government is not "running the auto industry." It is the majority owner. When it the last time the majority owner wasn't calling the shots?

From the New York Times

While the government’s $50 billion bailout last year saved G.M. from liquidation, the Obama administration has taken great pains to distance itself from any appearance of running the company. Even a hint of government meddling, administration officials say, could have a negative effect on the value of the American taxpayers’ stake in a publicly traded company.

Yet interviews with G.M. and federal officials show decisions by the government have played a pivotal role in shaping the automaker’s leadership, its business strategies, and now its initial stock offering, which will raise an estimated $10.6 billion at the same time that it reduces the taxpayers’ stake in the company from 61 percent to below 40 percent.

The government also set parameters for G.M.’s strategic direction — fewer brands and models, a leaner organization, and a sweeping overhaul of its plodding corporate culture.

McGruff said...

The famous quote "Why can't they make a Corolla?

I know that product development takes years. So wouldn't the decision for years from now be occurring during the present government control? Product appeal, as you aptly state, is key to generating sales. What does the government know about influencing those decisions now or in the future, especially when the President doesn't drive?

Chrysler was suffering from a lagging product line. Was Rattner the guy to know how to fix that?

Wasn't it the governments' directive to close all those dealerships? Was the decision to close dealerships a factor on reduced Camaro sales due to availability of a nearby dealer to buy from when considering how far one would have to go for service? Reducing dealerships enabled a reduction in inventory but putting $7,500 in everyone's bank account to buy a new car may have accomplished the same goal. Seems they like that idea for the VOLT although I said it before the bailout happened. And I didn't even bring up "Dealergate" and the possible partisan hit-job.

Rattner's comment The Volt, for example, could initially cost GM about $40,000 to produce while competing with conventional cars that sell in the $20,000 range. Even with the new $7,500 tax credit for plug-in hybrids, it will take years of improved efficiencies to make it profitable for GM. The government is controlling that decision. Isn't Obama's mission to push "green cars" regardless of the economics at this time speaking to product decisions and over controlling? Isn't his insistence on proceeding with the VOLT creating a problem for GM with the LEAF coming in at $25,000.00 after rebate vs. $32,500.00? Let's not forget the Prius undercuts both at the present time.

Let's get back to that Corolla. For either car to make sense a person would have to drive the LEAF 155,000 miles and the VOLT 200,000 miles to realize any economic savings.

Even if the government sells it shares in GM we still have skin in the game in the form of $7,500 rebates.

In the effort to downsize the automakers what position has the adminstration put them in to respond to an anticipated demand for vehicles in the future? Have they charted a course for China and India, particulary TATA Motors to take advantage of a weak production capacity? You must know about TATA Motors $2,000. car, the Nano. As of December, 2010 the average price of the Nano is $2,900.00. Even assuming a beefed up version to meet emission standards you are only looking at a $6,000.00 car.

At Chrysler let's not forget the meddling by the Obama administration in trying to force the Fiat merger.

I will acknowledge some of your criticism but not all of it. I hope this answer changed your mind about understanding business issues in the auto industry.

McGruff said...
This comment has been removed by the author.
McGruff said...
This comment has been removed by the author.
McGruff said...
This comment has been removed by the author.
McGruff said...
This comment has been removed by the author.
McGruff said...
This comment has been removed by the author.
McGruff said...
This comment has been removed by the author.
McGruff said...

Darn thing posted my last comment 6 more times