When the new[ish] Chevrolet Tahoe SUV was released, reporters asked GM Car Czar Bob Lutz whether rising gas prices would discourage SUV buyers from jumping into The General’s gas-guzzling truck. ”Rich people don’t care about gas prices,” Lutz remarked. Yes well, it’s time for Maximum Bob to take a class in Remedial Marketing. It’s a five minute course that starts with the Bell Curve.
Place potential car buyers along an axis showing unit price and you’ll get a big Bell Curve shaped hump in the middle. If you want to be the world’s largest manufacturer of automobiles– defined as the company that sells the largest number of cars per year– it really doesn’t matter what rich people think. There’s no way they can generate enough profits to make your nut. You have to play the law of averages.
The Big Three fell off the curve at the end of the ’80’s when they began chasing [imagined] high-margin niches filled with wealthy people. The more high-priced, high margin trucks and SUV’s GM, Ford and Chrysler sold, the less they cared about the millions of financially challenged customers who helped create their companies.
In this they were not alone. Even VW (Peoples’ Wagon!) neglected smaller cars in favor of big and expensive platforms. VW quality nosedived as the smart eggs within their organization set about building Phaetons, Touaregs and a limited edition ultracar, the Bugatti Veyron. Today they’re all fighting to claw their way back to the mean– before it’s too late.
Probably suspecting a trick (you’re ceding us the mass market?), Toyota and Honda took a good close look at the Car Customer Bell Curve and arrived at a very different conclusion. They asked: ”What if we offer affordable cars to the people right smack in the middle of the graph? A car range with just a touch better features, quality and service than similar servings from the domestics?” Rocket science!
We’re looking at two strategies here. Toyota: build affordable transportation for the masses at a quality level that slightly exceeds expectations relative to price. GM et al: build oversized, under-engineered and fuel inefficient cars for people who don’t care about money while palming off sub-standard cars on mainstream customers. Is it any wonder that the truck-crazed domestic manufacturers lost mission critical market share to the transplants? Lutz and his cohorts failed to recognize that the vast majority of potential customers were simply looking for affordable quality transportation.
Having taken their eyes off the chart, The Big Two Point Five are now paying the price. While they sent their best resources into an imagined land of promised gold, the transplants stuck to looking squarely at the needs of mainstream of car buyers. This focus also helped them gaze into the future. They asked themselves a question Detroit didn’t even consider: ”How do we keep our cars affordable as fuel costs and environmental pressures increase?”
Here’s Bob Lutz on the same topic back in 2003: ”It just doesn’t make environmental or economic sense to try to put an expensive dual-power train system into less expensive cars which already get good mileage.” Clearly, Maximum Bob’s take on good mileage is different from a Prius owner’s. Lutz belief that gas would go back under $2 a gallon certainly didn’t help his ability to gauge GM’s ”new” target market. And then GM was forced to cough up gas rebates for Lutz’ hulks, covering the spread in gas prices over $1.99 to the tune of $1000. These days, Bob’s a hybrid convert– who’s short on product.
To get back into the real game, the domestics will have to party back in The Land of Averages– provided they want to remain on the list of the world’s top five automobile manufacturers (the last time I looked it was still a priority). In this effort, there are no shortcuts.
In Ford’s case, success will require an immediate return to the reason behind Henry’s decision to create a Model-T assembly line: to build a ”reasonably priced, reliable and efficient car” that’s ”easy to operate, maintain and handle.” Hey; that sounds a lot like how people describe Toyota’s products today.
Mounting a convincing return to the essential mass market is going to be a lot harder than simply inventing imagined premium niches (I’m looking at you Chevrolet SSR). The domestics will have to make their cars both relevant and affordable in an age where everyone, including the supposedly oblivious rich, have woken up to the true cost of energy. An age where the competition is creative, well-funded and focused. But GM et al can only make a start if they stop applying yesterday’s problems to tomorrow’s solutions.
So, the lesson for today: you can’t please most of the people most of the time if you don’t even try.
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Rich people do care about image. The don’t buy SUV’s called Tahoe and Aspen, they buy SUV’s designated by letters and numbers and take them to places called Tahoe and Aspen.
NGC
Rich people do care about image. The don’t buy SUV’s called Tahoe and Aspen, they buy SUV’s designated by letters and numbers and take them to places called Tahoe and Aspen.
NGC
I agree. I don’t think the Tahoe is really a “rich people’s” vehicle. Consider the incentives. Yes, a loaded Tahoe stickers in the mid to high $40k range, but I have seen ads in the D/FW area for $10 – 15k off MSRP on ALL Tahoes and Suburbans. Now, you can get a $45,000 Tahoe for $30,000; not so far out of range now.
I own a loaded Suburban that listed for $48k, but I paid more like $35k for it…
2 years ago I replaced our leased minivan with a Pacifica. I was impressed by it’s looks, ride,handling, nav screen set-up,sound system, and it was the first mid-ute with 3 rows.I also liked the fact that it had MB dna and it felt like it. The final selling point was the 12 grand off the 45 grand sticker they gave me. Our business has grown and we are looking to move up to a new vehicle and although the Pacifica is a great piece ….for the money, I am looking at the new X5(now with 3 rows), GL450, or the Q7.
Not all the rich look for image – a survey of millionaires for the book “The Millionaire Next Door” (10 years ago) showed that most were into … domestic-brand sedans.
If you look at certain parking lots, such as doctors, lawyers, and realtors, yes, image counts, but not for everyone. Gotta like the contrast between Corollas and Quattroportes parked next to each other.
I think the rich people we’re talking about are the 6 figure-aires.There are far more of these people and they are the ones who after a week in the trenches want to tell people I make more money than you. If you know someone is mega rich the car the drive does’nt tell you that. If they drive a Prius(ie. Larry David) they are eccentric or guilt ridden enviromentalists.
GM may think they sell their SUVs to rich people, but rich is relative term.
I live in a pretty affluent town and if there’s a new and expensive vehicle on the market it shows up here fast.
The “upper middle class” folks who want SUVs tend to drive Tahoes/Expeditions/Suburbans, etc. A lot of those in driveways here. Some of the more “class conscious” go for CPO X5s and M-class MBs
The “rich people” drive AMG or high-end M-class Benzs, X5s, Cayennes, full optioned H-2s, Lexus and Land Rovers. After all, why drive something the “little people” have?
The difference is the people in the domestics whine about it costing $100 to fill the gas tank. The rich people don’t care. So GM is right about that. But the people who don’t car aren’t buying their trucks.
Let’s make a clear distinction here:
Per Lutz’s comment, GM apparently wants high earners, not the “wealthy”; the distinction being that people who have consistently accumulated wealth will look at the abysmal depreciation (overall cost of ownership) on most GMs and turn toward that same mean/median that everyone else goes toward. Nice reference of “Millionaire Next Door” above. Not pistonheads, mind you, we’re talking about the average joe buyer who are particularly financially savvy.
The Nouveau Riche will always have a new BMW lease to turn to, while the bigwigs maintain low-key stature in their 10-year-old ES300s.
”Rich people don’t care about gas prices”
Is that a quote? If so, perhaps Max Bob should be steering Ferretti Yachts rather than GM.
When Lutz said rich people don’t care about gas prices he begged the question asked. He knows that of the rich, he also knows the middle class does care about gas prices and it is the reason for the big three train wreck right now. He doesn’t dare go there (ie the gas price in the future topic). Remember his new trucks are only marginally better then his old ones and only compared to ford and dodge, not toyota and honda. A return to $3.00 gas will destroy the silverado, tahoe suburban game precisely because they have to sell most of them to the middle class. Thus, Bob Lutz knows to change the subject on fuel costs (which are rising again by the way) and talk of the rich not caring what they pay.
Bob Lutz flies an MD-500 helicopter for commuting, which a back-of-the-envelope calculation indicates gets 3.75 mpg (~225 mile range, 60 gal tank). Do you think HE gives a crap about gas prices?
Does Lutz strike anyone else as a vastly overrated car executive?
Success is defined by taking an ordinary task and doing it extraordinarily well. Toyota has built mudane cars that get people to work and home again reliably, hold their value no matter what, and are unoffensive in the least.
Honda, same thing. Hyundai gets it and is fast becoming another car you can count on. Nissan has gotten better the last few years and is also in the reasonable category.
Ford killed off some of their best models while ignoring market realities. Ironically the most popular car among millionaires seems to be the F-150. Think siding contractors and painters salting their cash away under the mattress and you’ll see why
You know what is more annoying then SUVs?
More nerdy eco-terrorist articles on automotive enthusiast websites.
People buy expensive truck that use lot’s of gas. If there was no demand there would be no trucks… get over it…Or move to a communist country where they would be more than pleased to govern your consumer choices for the “greater good”.
As the old saying goes – the rich don’t get to be rich by being stupid with their money.
In my neck of the woods, the people buying Lutz’ vehicles are the ones that can barely make the payment and fill it up at $2.15/gal. Next reality check will be here around Memorial Day.
In any event, the people their H2’s can continue to look down their noses at me in my 95 Mazda. I’m laughing today and will be laughing next summer as well.
“1984: You know what is more annoying then SUVs?
More nerdy eco-terrorist articles on automotive enthusiast websites.”
I don’t think this article mentioned the environment even once. This article is about how GM (and others) basically gave up a huge chunk of the market by placing all of their bets on trucks. When the winds of change blow, gas prices go up, consumers re-evaluate their needs or wants, and the General is up a creek without a paddle. Some people need trucks. So GM should build some trucks for some people. The rest of the people, the ones who bought into the SUV hype/fad/image whatever you want to call it… they need something to buy once they get over their Tonka phase. GM failed to recognize that SUV’s popularity was overinflated due to it being a fad. They thought they could ride this gravy train all the way into the black. It’s their job to know better.
If they’ve learned anything from all of this, they’ll already be working on plan B for when the “Crossover” bubble bursts. But something tells me, they probably aren’t, and a savvier company will be there waiting with just the right product for the CUV refugees. History has a tendency of repeating.
Cliff-Notes:
Big trucks are a fad and demand is slowing because of the fuel cost. The domestic manufactures failed realize the decline in the SUV market and the he foreign manufacturers have gained ground because of the oversight of America.
Throw in some overtones of financial, environmental and social irresponsibility and voila… Can this subject be beaten into the dirt further?
Trouble for GM is, it’s very hard to offer great value vechicles when you have no cash to spare for a quality redesign, and when you have too many administration blocks to building a pleasant, well-equipped car for not so much money.
Back in the 70’s, vodka in USSR came with lids made of thick foil, like yogurts. To facilitate opening, the lids had a little “tongue” on them, which you could pull on (once again, like yogurts). Here’s what some smartass did: they started making lids with no “tongue”. Their reasoning? It saves the country several tonnes of high-quality aluminum each year. And it turns opening into a 30 second (as opposed to 3) affair. I bet the perpetrator got a medal or some honorary paper for it, and a bonus, too.
Why did it happen? Because the entire administrative chain was drinking higher-quality vodka out of bottles that had corks instead of lids. And oh yeah, the administrative chain was so big that nobody was responsible for the final product, only for minor details like… Material savings. Bean-counting at its best.
GM has the same situtaion – their administration just doesn’t care. Everyone is for himself, and some mid-level manager would rather show some cost-cutting in his department and go home with a christmas bonus – as opposed to simply making a desireable product.
With its corporate culture, GM just can’t start making mid-level cars overnight. But high-profit trucks and niche cars it can, because that’s what gives executives the best bragging rights.
Many people in the middle of the curve cannot afford to buy new cars, or at least choose not to buy them. Who do you think buys used cars? I think the ratio between used and new sales is about 3:1.
I also don’t think it’s safe to make generalizations like Lutz does. There are people at every income level that pay little attention to prices, and some at every level that pay a lot of attention.
My mother, would could afford to drive virtually anything, gets off by figuring out where she can buy the cheapest gas in town. My wife, on the other hand, just pulls into whichever station is most convenient. I think this behavior is more a factor of personality than income level.
Very nice graph their Stein, I like it … it’s quite appropriate for this article.
Does Lutz strike anyone else as a vastly overrated car executive?
Emphasis on vastly.
You’re not the only one. For a long time now, I have been adamant that Lutz is nothing but a putz. Kudos to Stein for writing this article, let’s hope there are more like this.
1984, it would be nice if you could stay on topic. And if you agree with the basic premise of the article, what are you even arguing about? Arguing for the sake of arguing?
This is not just about SUVs, but about the flawed corporate culture of domestic makers. This article is also about Lutz and the flawed perspective he has on the car market. There have been way too many articles and stories hyping Lutz as a “legendary car czar”. This article hits at reality, which is that Lutz is way too overhyped.
gm is spending money on r and d for a new 500 hp camaro, to compete with fords 500 hp mustang. chrysler counters with a 500 hp 300. all three have humongous trucks with humongous engines in them all over the place.
in the mean time, i understand that toyota is spending r and d on a hybrid diesel, with a goal of 100 mpg.
that’s it in a nurshell.
good bye big 2.5.
Toyota this year is spending more on R & D than any other automaker. They just announced that they will start using next-gen ultra-clean diesels in 2008, already far along in development, independent of the recent agreement with Isuzu. Good chance we will see these diesels on US shores.
So we have from Toyota next-gen hybrids, a diesel offensive, and a complete overhaul of their engine and transmission lineup by 2010.
In a nutshell, when you’re mounting losses in the billions, it’s hard to be increasing spending on R & D and be competitive, as your biggest competitor continues to make record profits, and continues increasing R & D spending at an aggressive pace.
Can anyone imagine a huckster like Bob Lutz getting a job with Toyota or Honda?
Nah, I didn’t think so!
This is the guy who personally pushed the Australian “GTO” into the US market. He is all testosterone all the time.
[...]an age where everyone, including the supposedly oblivious rich, have woken up to the true cost of energy.
Careful now. There’s a big difference between anybody recognizing a “true cost” and a little fire and brimstone mentality resulting from a couple years of high gas prices. Recognizing true costs would have us in a (more) European style car market voluntarily, rather than through incentive structures (gas taxes).
I think this behavior is more a factor of personality than income level.
If you make this hypothetical normally-distributed graph shown in the review with respect not simply to income but to money budgeted for purchasing a car, it will reflect that. The middle of the graph will represent persons willing to spend whatever the mean value of a car purchased is, used or new, high income or low income. As a rough approximation, I think it holds water for the purposes of this article.
Lutz is not your problem. GM abandoning the things that do make you money in the financial situation their in now is suicide. Perhaps in the future but not now… You regard this guy Lutz as if he is some magic wizard.
Farago has been saying DW after DW the GM should focus on its greatest advantage instead of going after the small car market balls out.
So what is it going to be today?
What is this artice about?… Hind sight?… How hard is that?
Personally, I think this is a post hoc analysis of a situation that looks brilliant because you already know how everything has played out. If Toyota and Honda could have been successful in the 90’s building highly profitable SUV’s instead of high quality sedans, would they have altered their strategy? Don’t get me wrong…..I think the domestics have a lot to answer for. However, I’d like to see the evidence that Toyota and Honda made a conscious decision to stay out of the SUV craze because they were such visionaries. What I recall is continued attempts to crack that market but repeated attempts falling short. I’m quite sure that Toyota and Honda are more than capable of getting there because they both have very successful corporate cultures. But they aren’t planning to build more Prius’s down there at that new plant in Texas!
I’ve seen fuel prices around here take a big jump. The week before last it was under $2.50 a gallon. Last night it jumped to $2.99. Obviously the boys in Detroit are out of sync with the boys in Houston.
–chuck
Hoosier Red,
Thanks for saving me the effort in typing the same thing.
> You know what is more annoying then SUVs?
>More nerdy eco-terrorist articles on automotive enthusiast >websites.
And more annoying still are the “enlightened individuals” that believe that ozone alert days, global warming, and that constant brown cloud over our cities are someone else’s problems, not theirs.
If only people were directly responsible for the ramifications of their actions. What a world we might have.
ash78 – you hit the nail on the head!
Old or established money buys something reliable for the long-term…for all the ML, GL, X5 bling I see in the Hamptons or up in MA, I see just as many mid-90’s E series wagons, or Volvos, or Land Cruisers. True money doesn’t show it – new or temporary money does.
One of our friends in Greenwich bought a close-out Isuzu Trooper back in ‘02…the mid-level LS model, $8000 off. His priorities were reliability, drivability, and comfort. It replaced his ‘85 Volvo wagon. He could have bought just about anything (and probably Isuzu America the way its going!). His biggest concern was making sure it had heated seats, no leather (too showy), and was low-key….
For many Americans, their car is their social status. It’s one thing that signifies they’ve “made it”. Often this subsides when we purchase a house. That becomes a constant reminder to ourselves that we are doing well. Other things often fill this need for validation: shopping, cloths, shoes, food, etc. Marketing keys in on these basic human traits.
The job of a business is to make money. They do that through products…products we want to buy and products we do buy (even if we don’t want to?). The reality is that many people don’t want to buy an american car/suv/truck. It’s not a consumers job to tell those companies why, not buy something they don’t want to buy. It’s those companies job to actually figure it out. Clearly, the American car companies are failing…
…it’s not that we can’t afford the gas to put in our SUVs…it’s that we don’t want to. Folks will wait in line to save 3 cents a gallon…which equates to 60 cents for a 20 gallon fill up…but they’ll pop in 7-11 and drink a coke that cost $1.29 when they could have grabbed one from their house for $.25.
Come on big 2.5…you have to make us WANT your products.
fuel prices are up because the elections are over.
“VW … set about building Phaetons, Touaregs and a limited edition ultracar, the Bugatti Veyron.”
And even though this was a mistake, chances are good that VW learned something useful in engineering these cars, something that can trickle down to next-gen Golfs and Passats.
I don’t think SUVs have taught the big 3 anything new, except for how to build a better dinosaur. Sorta like NASCAR, come to think of it.
Folks will wait in line to save 3 cents a gallon…which equates to 60 cents for a 20 gallon fill up…but they’ll pop in 7-11 and drink a coke that cost $1.29 when they could have grabbed one from their house for $.25.
Yeah, I’ve had more than a few people comment on how insane I must be to buy a car that requires premium (93) fuel (which ends up costing me roughly an extra $2.00 per week vs. 87). Not a big deal. But gas prices are a hot-button issue that people rarely put into perspective. Fuel is not the biggest problem with SUVs… when I see one of these giants making its way about the winding country roads that comprise my commute, I don’t think, “man, that guy is burning lots of fuel”… I think “man, that guy isn’t having any fun.” or possibly “for the love of god, pull over and let me pass”
But that’s just me.
A popular opinion among American intellectual ‘elite’ is that the middle class will disappear. Thus the products you want to sell are to the rich and newly rich. Like giant SUV’s with mortgage payment like fuel costs.
However there are serious flaws in moving to that model as a large company catering to the middle class. Although very profitable per unit sold, the rich market couldnt’ be big enough to support all of GM’s legacy costs.
And some companies like GM seem to want to speed the process up… by hammering their blue and white collar workers and holding them down. That might work in a closed market like a utility.. but in the auto business your competition simply offers more and poaches your best talent. And deploys a more motivated work force.
One thing to remember: Toyota makes a LOT of money on Big @#)$*@#( SUVs too…
However, they kept their eye on the ball, not letting the cash cow be
a: the only thing they make money on
b: Immune from refinement. Remember, toyota created the Girly Rich Chick SoftRoader with the Lexus RX300.
The advertising works.
My wife wanted me to buy an Escalade. Their low ranking in last months CR didn’t discourage her. My sharing of the fact that I could not slide my foot sideways out of the second row passengers seat, without hitting the doorpost, did not phase her. Cool people are portrayed on TV as cruising in Escalades and that’s that.
I’ve disconnected the cable and gone back to antenna; fewer channels, fewer advertisements, grin.
> “Toyota: build affordable transportation for the masses at a quality level that slightly exceeds expectations relative to price.
GM et al: build oversized, under-engineered and fuel inefficient cars for people who don’t care about money while palming off sub-standard cars on mainstream customers. ”
That is the best summation of the Big 2.5’s problems I have ever seen.
Domestic 2.5 have lost the middle class. My wife’s cousin is a good old boy from the heart of agricultural land (still lives on a farm), 12 years ago I turned him onto Honda’s, his latest purchase (yesterday) was for a commuter car, he never even thought about visiting a domestic dealership. He bought a Yaris (he has 90 mile roundtrip). The point is simple, if GM/F, etc. can’t keep that kind of guy as a customer, a guy who has owned Ford trucks for 30 years, who are they going to get?
*Oh, the Toyota dealership sold 125 new cars last month, the Dodge dealer down the street? 27.
I don’t know if it was such a mistake for VW to build the Veyron. Your argument is stronger regarding the Phaeton and Touareg. The Veyron’s total development costs plus the amount they lose on each of the few hundered that will be built is less than Toyota, Ferrari or Renault spend on two seasons in F1. Automakers invest in performance halos for lots of reasons, the least of which (usually) is the financial case.
You forgot to mention the most important part to us enthusiasts – FUN TO DRIVE!
I find ubiquitously that Hondas and Mazdas are much more fun to drive than their price point would suggest, while maintaining reliability, economy, and affordability.
gm is spending money on r and d for a new 500 hp camaro, to compete with fords 500 hp mustang. chrysler counters with a 500 hp 300. all three have humongous trucks with humongous engines in them all over the place.
in the mean time, i understand that toyota is spending r and d on a hybrid diesel, with a goal of 100 mpg.
Toyota also spend quite a bit of R&D developing the new 381hp 5.7L i-Force V8 that powers the new 2008 Tundra, and a TRD supercharger for that engine that puts it near 500hp. They also developed a 425hp 5.0L for the Lexus IS and is close to unveiling a Skyline-fighter that should be good for near 500hp.
GM is also developing several hybrids (incl diesel) and is ahead of Toyota in hydrogen technologies.
Sounds pretty equal to me
It may sound equal, but it isn’t.
Ho-hum – another article in a long list of how terrible American corporations are at manufacturing vehicles. I think GM is doing the right things – the new Impala, while not all-American, will be a strong contender for my purchase if the quality is as high as my Grand Marquis have been.
I will agree that Ford in particular has lost their base – the vast middle class, but that is because the company has been run by big money liberals the last decade who pined for being able to sell cars to the “beautiful” people. Hence the total neglect of the types of cars that appeal to their core customer, while they wasted billions on Jaguar, Aston Martin, Volvo, etc. and their lame marketing attempts at “diverse” audiences, to the point of offending their core customers.
Finally, they try to take foreign platforms and half-heartedly redo them for the U.S.
The only automobile that Ford has that I like is the Town Car/Grand Marquis/Crown Vic. They have never been able to match that vehicle in 30 years of trying. If they would have spent the money used for the Five Hundred and instead used it to keep that platform updated, they would be far better off.
Once they kill it, I’m not going back to Ford. Apparently from their rapidly shrinking market share, I’m not alone.
This is coming from a guy who grew up in a Ford family -
It may sound equal, but it isn’t.
How so? Both giants develop products from little diesels to 500hp gas guzzlers.
Please help me understand that point of view.
Amen to the taxman and the Panthers :)
taxman100 said: “that is because the company has been run by big money liberals the last decade who pined for being able to sell cars to the “beautiful” people.”
Brilliant deductive reasoning. Those darn pesky tree-hugging liberal 10-MPG SUV building automotive executives. It is all their fault. lol
In any event, the people their H2’s can continue to look down their noses at me in my 95 Mazda.
Don’t worry. I’m sure they are.
“It may sound equal, but it isn’t.”
Why? Because we must bow our heads to the almighty Toyota?
Why? Because we must bow our heads to the almighty Toyota?
Nope, not at all. Those big profits and bigger-than-thou R&D budget just might amount to something. Or not.
Of course, Toyota just might lose focus, go on a wild spending spree, and buy satellite & electronic conglomerates, rental car companies, and other distractions.
Of course, Toyota just might lose focus, go on a wild spending spree, and buy satellite & electronic conglomerates, rental car companies, and other distractions.
From Toyota’s website:
http://www.toyota.co.jp/en/index_non_automotive.html
At present, Toyota is active in a number of areas in addition to its core business of automobile manufacturing-Areas including housing (pre-fab structures), financial services, communications, GAZOO (e-commerce), marine vehicles (boats), biotechnology and afforestation (sweetpotato farms), to name a few.
Eric,
For one thing, hydrogen fuelled cars need massive infrastructure which does not yet exist. Gas/Hybrids or diesel/Hybrids don’t, that alone puts any company into hybrids big time (not just Toyota) ahead in this game.
rgds