General Motors Death Watch 31: Ipso Facto

In his first podcast, Maximum Bob Lutz insists that the full-size SUV market will survive the changing economic climate, albeit in a diminished form. What, no Cat 5 devastation? Nope. GM's Car Czar reckons around 750k Americans "genuinely need" a jumbo SUV (down from last year's estimate of over a million). Yes, well, a man who flies an L39 fighter jet for fun may not be the best judge of how gas prices affect the average SUV buyer. In fact, I reckon MB's market estimate is too optimistic by half.

Lutz' cigar-scarred voice claims that the full-sized SUV's core clientele need their gargantuan gas-guzzler because they 'tow a boat' and 'carry lots of kids". Where's the data for that assertion? In truth, it's highly unlikely that even 50% of full-size SUV drivers ever tow a boat. What's more, there are plenty of capable sprog carriers out there– most now available in four-wheel-drive– that don't suck gas with the jumbo SUV's unrelenting extravagance. So unless these owners of full-sized SUV's tote more than three kids AND a boat, they're free to downsize.

Or not. Now that buyers of large SUV's are almost as rare as Oprah magazine cover girls, now that all the low-fertility, non-boating SUV owners who can afford to jettison their land yachts have done so (or will do so at trade-in time), the value of pre-owned XXXL SUV's has collapsed. A large percentage of full-size SUV owners owe significantly more money on their behemoth than it's market value, leaving them unable to escape their loan/vehicle. That's bad news for GM's new Tahoe, Escalade, Yukon, Yukon Denali and the eight (yes eight) other GMT900's headed for dealers' parking lots in '06.

Even those who can afford to pay the freight for these sleeker, more cosseting SUV's won't. The General's previous party line– that people who can buy a $40k to $70k SUV aren't overly concerned about $3-a-gallon gas– is moot. Despite Lutz' belief in his customers' maritime/progeny-based buying motivations, the popular movement into large SUV's was fashion-led. The popular movement OUT of them will be equally stylish– with one important distinction. The current fug of anti-SUV negativity is so poisonous it will only take a few months to destroy an automotive trend that was decades in the making.

For GM stockholders, employees and suppliers, it's a tragedy of the worst kind: preventable. While you can't blame The General for making full-sized hay while the sun shined, the automaker should have seen this coming. Unless you believe that GM's market analysts were paid to play Tetris, unless it's OK to enrich a CEO by $7m+ a year when he can't tell which way the wind's blowing in a howling gale, GM had time to get it right. GM could have– should have– dedicated every resource in their Empire to designing, manufacturing and selling the world's most fuel efficient SUV's. A 20 – 30% improvement in fuel economy would have forestalled much of today's "truck flight".

Of course, arrogance is the engine of tragedy. When Rabid Rick Wagoner met with Toyota Chairman Fujio Cho in May, he should have bowed with appropriate reverence (to put it politely), bought the Japanese automaker's hybrid technology and ordered it installed in all GM SUV's– even if it meant a two-year production delay. Instead, Wagoner-san flew back to Detroit, pulled the trigger on GM's great SUV giveaway and ordered production of GM's "refreshed" SUV's brought forward. Vehicles that get one mpg more than the old ones.

Wagoner's hubris stems from his profound faith in the power of perseverance. (It was the key to his rise within GM.) Rabid Rick clearly believes GM will answer the clarion call for improved mileage with new, world-beating technology… eventually. As in too late. Lutz, on the other hand, is a Marine. His hubris comes from his conviction that a warrior's heart conquers all. Listen to his podcast. Check out Maximum Bob's strange combination of bravado, bluster and battle fatigue. We HAVE what it takes. We CAN bunker down and hold out until the hybrid cavalry arrives. We WILL be OK. Except when Bob says "we" he means "I". [Business Law Number Seven from Maxi Bob's book on Chrysler: 'Teamwork isn't always right.]

I digress. Bottom-line: I'd be surprised to see large SUV sales top 400k a year. And yet Lutz' podcast tells us GM's winning: their new-shape SUV's will maintain a 60% share of the disappearing market. Meanwhile, over at the other tables, the croupier is busy shoveling The General's chips in Japan's direction. If it wasn't so funny, it would be sad. Actually, it is sad. Once upon a time, America's largest companies were known for their ability to bring technologically advanced products to market quickly, cheaply and efficiently. If the world's largest automaker can't re-engineer its vehicles fast enough to avoid a completely predictable market meltdown, then maybe it shouldn't BE the world's largest automaker. Ipso facto.

http://fastlane.gmblogs.com/archives/2005/09/first_podcast_w_2.html