By on September 27, 2007

115_1521.jpgClearly, nothing about the United Auto Workers (UAW) proposed contract with GM is clear. Until we see the precise details, the agreement's ramifications are unknown and unknowable. Meanwhile, you'd expect the media to hang fire. Yeah right. "For GM, deal is a game changer" proclaims the Globe and Mail. "GM Labor Deal Ushers In New Era for Auto Industry" the Wall Street Journal advises. "Deal gives GM cash to build better cars" predicts The Detroit Free Press. Scanning these Pollyanna prognostications, the Freep provides the greatest insight. Not because I believe a word of Mark Phelan's thesis. Because I don't.

I reckon the UAW's new contract will not deliver one dime of short-term savings to GM. If anything, it will add to their overheads– especially the interest on the money that will pay for the multi-billion dollar union-controlled VEBA health care superfund). This has been the pattern since GM CEO Rick Wagoner started his campaign to trim his employer's overheads to match their falling income. Wagoner announces plant closures and union buyouts that transfer costs from now to later. Why would this new contract be any different? As Frank Williams pointed-out, the contract calls for a "targeted special attrition program" for "non-core workers."

But let's assume Phelan's giant leap of faith is correct and [for reasons I can't possibly fathom] this new contract reduces GM's labor costs by $2k per car produced (presuming GM's output hasn't declined further since he wrote the piece). Is the scribe right to suggest that GM would– sorry, "will" use the extra cash to build better cars? Could this really be a turning point, where GM rides to glory on the back of a product renaissance? In a word, no.

In any discussion about GM's future, you have to consider the unavoidable truism that you can't fix stupid. In other words, no matter how much more money GM spends on improving its products, it runs the [usual] risk of spending the "extra" money on the wrong cars, in the wrong way, with little of nothing to show for it. When it comes to creating competitive product, financial resources are key. But a coherent strategy is more important. And a healthy corporate culture is the most important element of all. In this case, one out of three sucks. To wit:

Building a down market Caddy is stupid. Selling two different versions of the same CUV in the same dealership (Buick Enclave, GMC Acadia) is absurd. Rebadging a Chevy Trailblazer as a SAAB 9-7x is dumb. Sticking a $65k Corvette next to a $13k Aveo in a Chevy showroom is idiotic. Building a Corvette-engined folding hardtop pickup truck (SSR) is seriously misguided. Letting the Pontiac Grand Prix rot on the vine for a decade is asinine. Selling better Buicks in China than the US is ridiculous. And so on.

Now you could posit that these mistakes are somehow cost-related. And you'd be wrong. An extra $2k lavished on any of these vehicles would not have corrected the underlying strategic blunders that led to their realization. As Phelan himself points out, the fact that GM could sell the new, improved Cadillac CTS for the same price as the previous model puts paid to the "we don't have enough money to build competitive models" argument.

We've spoken before about the all-conquering corrosiveness of GM's multi-divisional corporate culture. The automaker is a labyrinth of beancounters and middle managers whose interdepartmental skills make Kafka's nightmarish bureaucracy seem like a well-run America's Cup team. It's important to realize that this kind of diseased corporate culture spends resources with all the efficiency and effectiveness of a government agency.

When I moved to the UK, the Labor party had the same answer for every problem: more money. When they assumed power, they raised taxes and spent the money. And… nothing. Anyone who holds the belief that an extra billion or two or five pumped into GM's stultified product development process will be a "game changer" is sorely mistaken. The money would– sorry, "will" disappear down the same rat hole that currently swallows GM's development cash and produces substandard, bone-headed products.

Fortunately, not all journalists are lining-up at the GM water cooler to drink the company's Kool-Aid. Like many TTAC commentators, some news outlets are pointing out that GM CEO Rick Wagoner's post-strike comment– "This agreement helps us close the fundamental competitive gaps that exist in our business"– finally puts his ass on the line. By his own admission, Wagoner can no longer point to labor costs as the weights around GM's ankles preventing it from running with (ahead of?) the Toyotas, Hondas and Nissans of the world.

Yes, well, there's still Japanese currency manipulation, the mortgage crisis, a general economic downturn and all the other excuses the company has been trotting-out since GM found itself having to explain why its indeterminate turnaround plan has failed to gain traction. Look for more of the same.

Well exactly. GM's new union contract– if ratified– will not save the automaker from its fundamental weaknesses. Going forward, in 2008, GM will be in for a long, tough slog, warmed only by its own cash conflagration. During this time, GM's labor costs will not come down dramatically, its health costs will not be reined in and its Hail Mary products won't save its soul.

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70 Comments on “General Motors Death Watch 148: You Can’t Fix Stupid...”


  • avatar
    glenn126

    Quite right. I will never forget the disappointment of reading the reality of GM in J. Patrick Wright's book "On a clear day you can see General Motors"  (http://www.babbtechnology.com/books/clear_day.htm). Specifically, how disappointed and disillusioned John DeLorean was in being moved "upstairs" from running Pontiac to running Chevrolet. Needless to say, GM could only have (and did get) worse in the ensuing 50 to 35 years since the time DeLorean was in GM.

  • avatar
    CliffG

    Until the agreement is produced and proves to me that the amount of cash that GM is spending on retiree health care is actually declining (what, they are funding the VEBA with cash flown in by spaceships from Jupiter?), their true operating costs haven’t changed by a nickel. Just because you are paying it out of your left pocket rather than your right pocket doesn’t change a d….d thing. Yikes.

    In other words, other than the fact that absolutely nothing has changed, everything is great!

  • avatar
    GS650G

    GM stock up over 10% since last Friday. Time to short the stock before they fall on their face.

  • avatar
    Queensmet

    It might be best just to wait and see how the UAW handles this over he weekend. Don't worry about it. The rank and file probably won't ratify the contract anyway. Takes too much away. They probably still believe that GM and EXXON – MOBIL are owned by the same people and are in cohoots, to ensure that GM never builds a 100 MPG 400 HP engine and that the gas price increase were just to move the profits from GM to EXXON, where there wold be less scrutiny and so this new contract could be developed. GM has plenty of money, they just have it hidden. The government and the SEC knows it's there, but they are all in it too. Oh yeah, and Elvis is alive and living in Jamaica.

  • avatar
    oboylepr

    Huh! The more things change, the more they stay the same. I guess any hope of a GM Recovery Watch would be premature.

  • avatar
    nonce

    union buyouts that transfer costs from now to later
    Don’t union buyouts, almost by definition, transfer costs from later to now?

  • avatar
    NickR

    When I moved to the UK, the Labor party had the same answer for every problem: more money.

    That’s been the fundamental philosophy of almost every municipal, provincial or federal government for the last 30 plus years, so don’t feel bad.

    Anyway, I think the SSR truck was a perfect choice for this editorial. What a complete and utter farce. A product built for a segment that never existed. Of course, if they had put that money into the Camaro, they might have pipped the new Mustang at the post, or at least not been third to launch in a niche market that is already contracting. (Speaking of which, what is the latest due date for the Camaro? Has it hit 2010 yet?).

  • avatar
    Steve_S

    “Building a down market Caddy is stupid.” – Seems like its going to work for BMW (1 series coupe and cabrio)

    “ Selling two different versions of the same CUV in the same dealership (Buick Enclave, GMC Acadia) is absurd”. – Acadia and Outlook which look almost the same is absurd, the Acadia/Enclave or Outlook/Enclave is just fine. What is an Audi TT except a tarted up Golf yet it sells well as does the Sky/Solstice. Its been proven that sharing a platform is smart as long as you differentiate the interior/exterior and if possible some of the characteristics of the car. Camry/ES, Accord/TL, Golf/A3/TT and so on.

    “Rebadging a Chevy Trailblazer as a SAAB 9-7x is dumb.” – Yes it is.

    “Sticking a $65k Corvette next to a $13k Aveo in a Chevy showroom is idiotic.” – Yep.

    “Building a Corvette-engined folding hardtop pickup truck (SSR) is seriously misguided.” – Corvette engined yes, if it had been $25-$30k they would have sold some as the niche product it is.

    “Letting the Pontiac Grand Prix rot on the vine for a decade is asinine. Selling better Buicks in China than the US is ridiculous.” Yes and Yes although Pontiac until recently has some horrible looking designs. Just look at a Trans Am/Firebird with that huge body cladding and snorkel pig nostrils or the Aztek etc.

  • avatar
    compy386

    Wow… this article shows utter lack of any business sense if I’ve ever seen it. The fault of pretty much every enthusiast is to say that it’s all about product. Well you’re wrong. Good product doesn’t make good business and bad product can even make more business sense. Take a look at Boeing for example. Boeing for a while had extremely great engineering talent. Yet its investments went nowhere and its lunch was getting eaten by Airbus. Eventually Boeing hired a GM exec as CFO and she instilled the idea that products need to make financial sense. The entire reason that GM (as well as Ford) have a poor small car portfolio is that neither one could make money on the products. So why invest millions in vehicles that lose money? That may have helped both companies retain market share, but it doesn’t help GM make money. Both companies have the engineering talent to create cars (as displayed by their foreign business teams). Now GM may be able to better present financial cases for investing in certain markets.

  • avatar
    KatiePuckrik

    I disagree with Mr Farago. You can fix stupid, it’s just a case of how far are you willing to go?

    I keep bringing up our South Korean friends, but they really highlight what can be accomplished when you have a CEO who knows what he wants in his products, a workforce who’s willing to make that vision a reality and managers who can implement that goal. In a nutshell, Hyundai making crud for years, Chung Mong Koo says “No more! I want all our cars to have quality, reliability and value for money as paramounts goals”. End result? Hyundai are now a brand people can respect (almost). Nissan were in a world of trouble until Mr Carlos “Good in the short term, know jack about the car industry” Ghosn instilled a new way of thinking and management into Nissan. My favourite new idea of Mr Ghosn’s was to hold management accountable for meeting targets. Like recently, when Nissan missed a sales target and Mr Ghosn said to his team of managers “Right, you missed our sales target? Forget about your bonuses!”.

    GM can fix their stupidity provided they are willing to see it through to the end. No debunking the theories halfway through the course or “rearrangement of priorities”. GM need to (to quote the genius that is Charles Darwin) adapt or die. GM has been using one excuse after another since the Japanese discovered William Deming. First it was “Their cars aren’t as good as ours”, the Japanese fixed that. Then it was “It’s unfair, they make their cars abroad. For an even playing field they should come to the US and make them” Unfortunately, for GM they did! Then it was “currency manipulations” which is curious because if they made their cars in the US then surely they’re using the same currency as GM? Naturally, GM outsourcing production of their Silverados to Mexico to take advantage of Mexico cheap currency was different to the Japanese making cars in Japan for the same reason. So let’s squash that idea once and for all(!)

    The Japanese are, metaphorically, the new smart kid who moved to a new school and made GM look like a big doofus by doing what GM couldn’t do. For example, GM whining about not being able to meet 1975 emissions without a catalytic converter, then Honda showing that you can do it without a catalytic converter. Or GM saying hybrids couldn’t be mainstream and profitable, then Toyota and Honda showed them different by making the mainstream and profitable.

    Let’s run with the hypothesis, that GM now have the same costs per car as Toyota (I don’t believe they have, but let’s work with this for a minute). Does this automatically mean that GM will crush Toyota? Not really. Toyota have been charging fractionally more for their cars than GM because people are willing to pay more if they are getting a better quality car for it. It’s GM’s cars which are the problem! GM have 12 brands going nowhere and standing for nothing, cars which need heavy discounts to shift and a bad reliability image to shake off, too. If their cars are to be thought of in the same vein as the transplants, then they have to MAKE cars in the same vein as the transplants. It’s a simple equation. But GM’s current ideaology is to spend more on advertising and discounts. Great(!)

    In conclusion, I’m starting to wonder if GM’s biggest problem was never money worries (though it is pretty important) but GM’s style of thinking. Maybe GM need to call in, not the receivers, but new blood willing to shake up GM. The real question is not “Where are all of GM’s good cars gone?” but “Where’s the great, American competitive spirit gone…..?”

  • avatar
    glenn126

    I have to say this with regards to your comments, compy386. Sure, every vehicle a company builds should add to the profits. But what about the 2.8 which can’t make any profits? By definition, you are saying they should shut down today. I happen to agree.

    However, “it could have been different” for GM, Ford and Chrysler regarding small cars, or certainly could have been for GM and Ford, anyway.

    Look at the 1978 Plymouth Horizon and Dodge Omni. Shared exterior body panels and some engineering with Simca (then Chrysler Europe) – and bought engines/transmissions from VW (Golf/Rabbit based tech). The point is this – the company had worldwide operations which could assist in engineering a “world car” just as Toyota do every day with, say the current day Corolla. Of course, a brush with bankruptcy in 1979 meant that Chrysler sold their European operations for a dollar, precluding any future collaboration with people who know how to design sensible small cars….

    Likewise, the 1981 Ford Escort – sharing a LOT of tech with Ford-Europe.

    And GM’s 1976 Chevette – sharing a LOT of tech with Opel-Brazil, Isuzu (part owned), Opel Europe and Vauxhall UK. Then, the first generation J-cars (the most infamous of which was the Cadillac “Cinnamin” I mean Cimarron).

    A lot of the “we can’t make small cars on a profit” whining by GM, Ford and Chrysler is a lie, and they (and we) all know it. They just couldn’t be bothered, since the low hanging fruit was too good to pass up (cheap Stupid Utility Vehicles selling for $10,000 profit each, based on oh-so-cheap pickup truck tech).

    Certainly, GM, Ford and Chrysler “probably” would have moved modern Chevrolet Astra production to Mexico, likewise Ford with their Euro-up-to-date-Focus, and as Chrysler did for some 1998 and all 1999 Neons.

  • avatar
    mikey

    I find myself agreeing with some of this death watch Yeah I can,t see GM pouring its new found wealth into something like product develpment.I,tll just get gobbled up in executive bonuses and corporate blunders. Wouldn’t it be great if somebody had stashed some big coin away during the SUV /big truck= big profit years?
    And Rick W did lose his favorite target[the uaw]
    Having said that I see the glass as 1/2 full We do have a great and competetive product.Our full size trucks are second to none.I also wonder why we have to have 3 big crossovers.Maybe to keep dealers happy?
    I don’t know who is buying the zillion Impalas that come down the line maybe its the fleets?I do know that I had barely sat at my desk last night when word come of weekend overtime in the plants.
    It goes something like this.
    Due to a work interuption in the USA [you not allowed to say strike in corporate speak] in order to meet our customer demands{is that like budget or National or Alamo}please be advised that you will be required to work all shifts on Sat.
    So we need to work overtime to sell discounted cars to the rental people?
    G.M shares have doubled since the the end of 2005.We have turned a profit in the last few 1/4s Executive bonus are being paid,and I still gotta job.
    I’m confused.I read Detroit Fee press and the Detroit news and of course TTAC.I can even read some of the Wall street journal though its a little deep for me.Four different views then I got my own.
    Yeah,and the glass is still 1/2 full.

  • avatar
    Hippo

    It doesn’t make sense on paper unless economic developments in the near future are factored in.
    There will be massive devaluation of the U$S before 1Q08 as the FED will further reduce rates and foreign holders dump $
    By sending cost of living increases into funding the VEBA the current workers will basically contribute much of the VEBA funding and the retired ones will be screwed.
    The only ones making out are the ones getting the big hidden “signing bonuses”.
    It still isn’t going to save GM even though the imports, in particular those without US plants, are also going to be affected big time.

    Want to spend 200 Euros and read the data?
    http://www.leap2020.eu/Contents-of-previous-issues_r34.html

  • avatar
    umterp85

    Katie: Overall great post and I agree with most of what you say. That said, I do not understand why you continue to bring up Hyundai as this beacon of hope that GM and Ford should benchmark. Other than a warranty scheme and upgraded quality that is barely average—what have they truly added to the game ? Over the last two years—the answer is nothing in the US. Despite almost a complete turn in their line over the last 24 months—their retail share is stagnant (2.5-3.0) and incentives are way up. Any reported sales gains come on the heels of fleet….does this story sound familiar? Ford has it right—benchmark the best (Toyota..as I think you suggest) and get the damn ship sailing in the correct direction with a coherent strategy.

  • avatar
    RyanK02

    I am rooting for GM as much/more than anyone, but it is hard to feel sorry for GM. From insiders’ insight (ie mikey), GM has been telling their employees that everything is looking up, they haven’t cut any of the white-collar fat (middle managers), and are still doling out bonuses to the company employees. If you were a UAW worker, would you believe that they are in such poor shape that you need to give back some of your benefits/wages to help them out?

    If GM wanted concessions from the UAW, they should have trimmed the fat on their side first and made those that are left fully accountable for their actions. That kind of leadership would have garnered a lot of sympathy (IMO) from the rank and file. Even if it didn’t, they still would have lowered their operating costs, which would have bought them more time.

  • avatar
    MgoBLUE

    RF — thank you for calling out these frauds. They are not reporters or columnists, they are cheerleaders.

    I noticed Phelan spent time at Road & Track and the New York Times. Why would anybody go to work for the Free Press after having worked for the Times? That’s like playing Double-A ball after years in the Major League’s! Nobody does that! What’s his deal? Couldn’t hack it, or doesn’t like riding a subway?

  • avatar
    umterp85

    MgoBlue: Given all of the ethical problems the New York Times has had over the past few years combined with their utter lack of journalistic objectivity—-maybe Mr. Phelen wanted to go to a paper that does not not fabricate stories. Net—who is the bigger fraud—the NYT or Mr. Phelen ?

  • avatar
    glenn126

    With apologies to mikey, my Newfoundland dog seems “smarter” than 23% of the US population who continue to buy these 2.8 dogs (pardon the bad joke).

    I was “waiting on Mrs.” (shopping) with my Newf, sitting on the lawn near the entrance to the mall, and my black & white Newfie girl was sitting calmly relaxing – suddenly, she’d “alert” and “glare” as cars passed by. She periodically kept doing it.

    Being the car guy that I am, I started keeping track.

    Yeah, she only “glared” at GM products. I kid you all not! It was hilarious.

    My Newfoundland dog, the hound-dog car-critic, apparently hates all GM products. Perhaps there is a nasty (to her) squeek with the brakes in addition to the squeek I can hear as they were slowing down to turn into the parking lot….

    But it was hilarious. (I knew she was smart, but getoutahere!)

    I think the reason Katie is using Hyundai is because they were “at the back of the race” and now are “in the running” and actually doing as well or better than the 2.8. Correct me if I’m wrong, Katie.

    But all car companies should be using Deming’s theories, and should use best practices for everything they do…. and if they did, we would not death ANY death-watches, would we?

  • avatar
    mikey

    Well said ryan and so true.This is where and why the S.O.S people get thier support.The UAW is not leaking any more details,who ever went singing to the Detroit free press Gettlefinger and company might of performed some surgery on the dude and now he is doing his signing with a high voice.
    The details will come out and the membership will be given a big sell job.I will be shocked if it passes by more than 70% but it will pass

  • avatar
    hltguy

    Mikey: Your insights are always interesting, I wonder how the production numbers of certain models are decided upon. While the factories crank out so many vehicles that overtime is required, the part of the US I live in the GM dealers are constantly having large discounts and factory rebates advertised. In addition, GM market’s share has dwindled to its lowest point ever. Its stock price is up recently, that is correct but down over $60 a share since the late 90’s.
    There remains hundreds of thousands of 2007 models yet unsold, while the 2008 fill dealer lots.
    The large truck market is shrinking.
    I am just trying to understand how all of it works, increase production that requires overtime, yet nearly a million vehicles built and unsold and heavy discounts of those delivered to dealers.
    Wierd.

  • avatar
    KatiePuckrik

    Mr Glenn126,

    That’s precisely the reason I use Hyundai as an example of how to apply yourself. Hyundai were considered crud about 10 years ago so most people on TTAC can remember “Crud Hyundai” and “Good Hyundai”. I grew up when the Japanese were making their reputation as reliable car makers, so I can’t imagine the Japanese as crud car makers!

    Basically, I was trying to visualise it with the most recent example.

    God, I waffle on, don’t I?!

  • avatar
    MgoBLUE

    umterp85 — I concur, the NYT is not a standard of objectivity or balance; it is a liberal rag. That said, their global reach is undeniable. They are one of the papers of record worldwide, meanwhile the Free Press isn’t printed outside of Michigan. Again, Major League vs Double-A ball. Can you defend Phelan & Co’s demonstrated bias for the Big 2.0? You wouldn’t characterize his articles as complete fabrication?

  • avatar
    mikey

    Glen 126
    The dog has been riding around in a prius all those electrical/magnetic fields have been bothering him coupled with all the GM products that have to pass the prius all the time The Newfie has taken offence.keep the dog get rid of the Prius. Problem solved

  • avatar
    86er

    I think Phelan just writes for his audience, as most journalists that editorialize on a regular basis do.

    That said, I’ve never had a problem with any of his reviews or editorials. He strikes me as an old-fashioned journo who merely reports on the product in front of him without resorting to backhanded compliments and trying to be too clever by half. It’s almost come full circle to the point of being refreshing.

  • avatar
    Dynamic88

    “compy386 :
    September 27th, 2007 at 1:36 pm

    Wow… this article shows utter lack of any business sense if I’ve ever seen it. The fault of pretty much every enthusiast is to say that it’s all about product. Well you’re wrong. Good product doesn’t make good business and bad product can even make more business sense. Take a look at Boeing for example. Boeing for a while had extremely great engineering talent. Yet its investments went nowhere and its lunch was getting eaten by Airbus. Eventually Boeing hired a GM exec as CFO and she instilled the idea that products need to make financial sense. The entire reason that GM (as well as Ford) have a poor small car portfolio is that neither one could make money on the products. So why invest millions in vehicles that lose money? That may have helped both companies retain market share, but it doesn’t help GM make money. Both companies have the engineering talent to create cars (as displayed by their foreign business teams). Now GM may be able to better present financial cases for investing in certain markets.”

    With the Aveo made overseas, I have a hard time believing they can’t make any money on small cars. Even if they made them here, I’d have to see actual numbers before I’d believe that.

    I think the lack of business sense is demonstrated by 30 years of not producing good product. Even if they are better now, they’ve got 30 years of bad reviews to overcome, and their competition hasn’t been in a holding pattern.

    It’s all about the product.

  • avatar
    whatdoiknow1

    Katie: I do not understand why you continue to bring up Hyundai as this beacon of hope that GM and Ford should benchmark. Other than a warranty scheme and upgraded quality that is barely average—what have they truly added to the game ? Over the last two years—the answer is nothing in the US. Despite almost a complete turn in their line over the last 24 months—their retail share is stagnant and incentives are way up. Any reported sales gains come on the heels of fleet….does this story sound familiar? Ford has it right—benchmark the best (Toyota) and get the damn ship sailing in the correct direction.

    Hyundai is the auto company that is currently generating the most positive buzz about its current line up of cars. This year I went the the NY auto show on twice and both times the Hyundai exhibit was packed! Just compare the current Santa Fe with the previous one, need I say more. Oh, lets not forget about the that low entry price. On top of that Hyundai has a V8, a RWD Sedan, and a RWD coupe coming down the pipeline.
    You can’t deny that Hyundai is making some major plays to raise it status over here.

    Yes, Hyundai may have a way to go but they do appear to be well on that way.
    I guess to sum it up in a nutshell Hyundai is considered an automaker that “gets it” in terms of what the US market wants and is willing to deliver on it.

    Unlike Hyundai GM and Ford love to talk trash about what they can do but rarely ever manage to deliver. Hyundai’s recent developements show us what a company can do when it is actually serious about its business.

  • avatar
    FreeMan

    Just curious. What did two days with no production do to inventory levels? Obviously, according to mikey, GM’s looking to replenish their lots, but how many vehicles did the dealers manage to move during the 2 day national vacation?

  • avatar

    Regarding the new VERB, there was an article in a local(Toronto) Paper about a VERB that was tried before with the UAW with Caterpillar retirees! It went broke within six years and now most of the retirees have to fund there own Medical expenses, makes one think doesnt it? The cost of prescriptions and everthing else connected with them is going through the Roof!

  • avatar
    Landcrusher

    I think there is a lot of good stuff in this article. It asks a great question. Even if you “level the playing field” how will that result in more GM sales. Were the buyers worried about how much GM was losing per car?

    So they reinvest the new money they were losing on each sale into developing new products that might sell better. Couldn’t they have instead used the VEBA money years ago for the same thing?

    Speaking of the VEBA money, it was a great idea on Wall Street, not Main St. Main street has the good ideas in this country. Does anyone know what happens to the VEBA money if we get Hillary Care?

    I am thinking Ron and company now have all the money they need to buy the votes to get healthcare socialized, and still have plenty left to retire on.

    I mean if the workers think GM is just hiding the money, surely they will believe that RG and his pals have plans for that cash.

  • avatar
    umterp85

    whatdoiknow1: I did not deny that Hyundai has made strides—particularly on quality…and bang for the buck

    But I posit this….if a US Automaker just completely turned over their lineup and did not move the needle while increasing fleet sales and incentives—most on this site would be all over them (read Saturn).

    Hyundai has turned their line over in the last year and has not moved the retail sales needle despite all of the buzz you talk about. Their absolute number of retail vehicles sold and market share remain stagnant (2.5-3.0)

  • avatar
    whatdoiknow1

    Umterp85

    Thank you, very good point. All of that effort and no improvement in market share! This is one hell of a business.

  • avatar
    Pch101

    Hyundai is a diversified corporation that is building a long-term business that involves using the US as a launch pad for growth, just as the Japanese makers did.

    The strategy reflects its resources as a company and its ability to wait for years to see results. First, they prioritized quality and focused on a limited range of cars. Then, they built plant capacity in the US that they clearly don’t need today, in the hopes that they will need it years from now as they build their brands and enhance their reputations.

    Hyundai sells into fleets because it is attempting to first build a presence, regardless of short-term profits, and to unload the inventory created by this build-them-and-they-will-come strategy. You will know whether this has been successful if the fleet share 10-20 years from now is much lower than today. The fleet sales are part of an interim plan, that ultimately may or may not work.

    The Big 2.8 sell into fleets because they build so much stuff that people don’t want that they have no choice but to dump them at a steep discount. This is a non-strategy of oops-we-built-it-but-they-didn’t-come, quite the opposite of what Hyundai is doing and more of a symptom of the problem than the problem itself. If GM could earn conquest sales with the Cobalt against the Civic, for example, GM could maintain its current production levels, take the retail sales crown and lead the retail market while carrying only modest fleet sales.

    But the cars just aren’t good enough to get them there. A plan based upon improving the cars generation after generation and patiently (it can’t happen overnight) winning back lost customers through consistent, diligent effort, brand building and continuous improvement is the only path out. Too bad they can’t find the trail, as it is well marked and Deming provided an easy-to-read map for whomever wants to read it.

  • avatar
    philbailey

    Hyundai went from the Pony (a Morris 1100 copy, by the way) to the latest Accent.

    GM went fom the Cavalier to the Cobalt.

    Pardon me while I shudder!!

  • avatar
    guyincognito

    I think compy386’s post accurately demonstrates the mentality in the product planning offices of the big 2.8 and a major if not the major reason they are now in the predicament they are. The business case is sound: it costs x dollars in fixed costs to build a small car and they sell for y dollars, our competitive disadvantage in overhead eats up the profit margin, therefore it doesn’t make sense to put effort into building them, so we’ll just build some extremely low quality decontented version to minimize the losses. Then we can invest the money we make on the loans off of these cars to recoup the losses.

    Unfortunately this rationale fails to take into account the possibility that a class leading example could fetch a higher price and thus make a profit. Or that it is possible to properly engineer a world platform that could sell well all over the world and use economies of scale to make it profitable. There simply is no faith in the ingenuity of the workforce. They think they are avoiding risk by this strategy, but in reality the y undermine everything the company is and should be and end up costing it everything. Product is everything.

  • avatar
    Redbarchetta

    compy386Good product doesn’t make good business and bad product can even make more business sense.

    I would like to know what business you are in, because if has anything to do with the built envorinment around us I need to know so I stay the hell away from anything you make.
    Bad product=Bad company
    Or do you want your building to fall in on you.

  • avatar
    Pch101

    Guyincognito, I don’t know who you are (obviously — you’re incognito), but someone in Detroit needs to buy you a drink.

    Hell, they should buy you a winery. Your summary succinctly describes the problem and why Detroit completely misses it. You can’t build market share, brand loyalty and customer satisfaction if the fixation is on short-term margins. You instead up with half-assed products that have to be discounted to be sold at all.

    Add to this that every sale that Detroit doesn’t make goes to some other company, that then gets the opportunity to build a relationship with the customer and build their loyalty. That customer costs far more to acquire than would be an existing customer who is already buying your products.

    The smart thing that Toyota, Honda and Nissan did from the beginning was to reach out to the youth market. They do age, will earn more money and buy many cars in their lifetimes, so capturing them when their young helps to upsell them the next time, and the time after that, and the time after that.

    Detroit has lost a large chunk of an entire generation of car buyers, and has almost no chance to get them back. That group in turn will teach their children to buy transplants, instead of the domestics. If you want to see a recipe for losing money and turning your business into a has-been, that would have to be about it.

  • avatar
    umterp85

    Pch101 :Hyundai is a diversified corporation that is building a long-term business that involves using the US as a launch pad for growth, just as the Japanese makers did.

    Problem with this theory is that the Japanese were facing a big arrogant Big 3 when they came ashore and nothing more…in other words they had ALOT of low hanging fruit.

    Today, Hyundai face no such easy path. Honda and Toyota are entrenched, European presence is higher, and the Big 3 have been humbled into making a good product or die. In other words, Hyundai faces an increasingly competitive and fragmented market—-a dynamic that makes share gain difficult—especially when your offering does not yield any quality or style advantage. If Hyundai cannot grab share (they have not) while there product is new and hot—-I imagine that the next few years are going to be more of the same (stagnant retail share) or worse.

  • avatar
    quasimondo

    Fine article, but I do question this one statement.

    “Sticking a $65k Corvette next to a $13k Aveo in a Chevy showroom is idiotic”

    Will we be saying the same of Nissan a year from now when a $65k GT-R is parked next to a $13k Versa in showrooms?

  • avatar
    tech98

    …we’ll just build some extremely low quality decontented version to minimize the losses. Then we can invest the money we make on the loans off of these cars to recoup the losses.

    Unfortunately this rationale fails to take into account the possibility that a class leading example could fetch a higher price and thus make a profit.

    Or that a crud small car discredits the rest of their lineup. Or that a low-profit buyer of a small car will stay with the brand for decades if he/she had a great experience with the product.

    Every corporation needs bean counters, but in Detroit they are the entire power structure, the dominant force in corporate culture. And their leading product these days is excuses.

    Do you want to buy from a car company that only wants to get maximum money from you at minimal cost, or one that actually values its reputation based on engineering, quality and such?

  • avatar
    glenn126

    Mikey, glad you have such a great sense of humor and I gotta tell you, I laughed so hard with you comment about getting rid of the prius and keeping the dog – my wife “alerted” from the other room.

    I’m hoping for your sake & thousands of others, that the 2.8 survive and prosper, but wow, I think that the management need to wake up quick…

    Personally I think that GM, Ford and Chrysler could use some ex-AMC executives. Hunh?! you say?

    Well, AMC used to be so far behind the 8-ball, that they “had” to be better executives. And, where are the 2.8 right now? About where AMC used to be…

    I remember reading a history of Packard and James Nance (Packard President then later Studebaker-Packard President) who said that when he hired ex-big 3 executives, they couldn’t cut the mustard in the tougher “barely surviving” environment…

    Likewise AMC executives had to be made of sterner stuff.

    The biggest thing the 2.8 need, though, is to put Deming’s teachings to use – yesterday!

  • avatar
    Redbarchetta

    I don’t see the management coming to the realization that they need to replace themselves to make the company survive. I think they have proven up to this point that they care most about themselves and last about the company, it’s workforce and it’s customers.

  • avatar
    Pch101

    Today, Hyundai face no such easy path. Honda and Toyota are entrenched, European presence is higher, and the Big 3 have been humbled into making a good product or die.

    Hyundai has the advantage of being a diversified company that can prop up its car business for quite some time. The US car market is highly lucrative for those that do well in it, so it’s a desirable prize, despite the challenges.

    Hyundai is doing today what Toyota and Datsun were doing in the early 1970’s — competing by providing a high quality product at a relatively reasonable price. As they built their brand equities, they moved upmarket and began charging higher prices, in many cases actually higher than the firms that they used to undercut.

    The value of a brand is that the consumer trusts it enough to pay a premium for it based upon whatever virtues it is expected to have. Hyundai surely believes that as it increases its brand, it can make less effort to compete on price, which will increase its revenues and gross margins, while increased sales volumes that come from the brand building help to reduce its per-unit costs. It’s a classic formula, one that if successful will help to damage the Big 2.8 more so than the transplants.

  • avatar
    cheezeweggie

    Even when GM was rolling in cash, their cars were sub par. Why would that overpaid MBA mentality change now? All they need to do is collect their bonuses, ride the golden parachute, and take a job as CEO of Home Depot after they are “let go”.

  • avatar
    John

    RF,

    The WSJ headline you cited (“GM Labor Deal Ushers In New Era for Auto Industry”) was not gushing about GM’s imminent comeback. It was a comment on the new circumstances for all of Detroit. First paragraph:

    “The deal struck at 3:05 a.m. yesterday between General Motors Corp. and the United Auto Workers union marks the dawn of an uncertain new era for the American auto industry and its unionized work force.”

    John

  • avatar
    Geotpf

    quasimondo: Yeah, but at least the Versa doesn’t look like a piece of shit like the Aveo.

    Although I’ve seen much worse. In my area, I have a Pontiac-GMC-Buick-Cadillac dealer (yikes). I personally saw a $100,000 Cadiilac XLR-V literally a dozen yards away from a $15,000 Pontiac G5.

  • avatar
    ihatetrees

    Re Pch101..
    The smart thing that Toyota, Honda and Nissan did from the beginning was to reach out to the youth market. They do age, will earn more money and buy many cars in their lifetimes, so capturing them when their young helps to upsell them the next time, and the time after that, and the time after that.

    I think a similar point could be made regarding the Central/South American small pickup market. Did no one at the Big Three see any upside to getting into that ‘young’ market?

  • avatar
    jthorner

    In 1915 Cadillac ran an advertisement exactly one time in the Saturday Evening Post. “The Penalty of Leadership” has become a legend and is often cited as one of the best pieces of advertising ever published. The truths contained therein have much to say about the current state of the North American automotive market. The last paragraph is especially appropriate today.

    Here is the text:

    “In every field of human endeavor, he that is first must perpetually live in the white light of publicity. Whether the leadership be vested in a man or in a manufactured product, emulation and envy are ever at work. In art, in literature, in music, in industry, the reward and the punishment are always the same. The reward is widespread recognition, the punishment fierce denial and detraction. When a man’s work becomes a standard for the whole world, it also becomes a target for the shafts of the envious few. If his work is merely mediocre, he will be left severely alone. If he achieve a masterpiece it will set a million tongues awagging. Jealousy does not protrude its forked tongue at the artist who produces a common-place painting. Whatsoever you write, or paint, or play, or sing, or build; no one will strive to surpass or to slander you unless your work be stamped with the seal of genius.

    Long after a great work has been done, those who are disappointed or envious continue to cry out that it cannot be done. Spiteful little voices in the domain of art were raised against our own Whistler as a mountebank, long after the big world had acclaimed him its greatest artistic genius. Multitudes flocked to Bayreuth to worship at the musical shrine of Wagner, while the little group of those whom he had dethroned and displaced argued angrily that he was no musician at all. The little world continued to protest that Fulton could never build a steamboat, while the big world flocked to the river banks to see his boat steam by.

    The Leader is assailed because he is a Leader, and the effort to equal him is merely added proof of that leadership. Failing to equal or to excel, the follower seeks to depreciate and to destroy, but only confirms once more the superiority of that which he strives to supplant. There is nothing new in this, it is as old as the world and as old as the human passions of envy, fear, greed, ambition, and the desire to surpass. And it all avails nothing. If the leader truly leads, he remains the leader. Master Poet, Master Painter, Master Workman; each in his turn is assailed, and each holds his laurels through the ages.

    That which is great makes itself known, no matter how loud the clamor of denial. That which deserves to live, Lives.”

  • avatar
    Spaniard

    Building a Corvette-engined folding hardtop pickup truck (SSR) is seriously misguided

    Well, sir. I disagree. The SSR was a car I dislike a lot, an irrational, total nonsense car.

    BUT…

    *But the same -just the same- can be said about the parts bin special, dangerous-as-the-Pinto-gas-tank 1964 Ford Mustang.

    *Or about the foul handling, foul stopping, fake air hood scoop original Pontiac GTO.

    *Or about the totally enigmatic (at least for me, and admirer of small Hatchbacks) high powered versions of the Chevrolet El Camino.

    *Or about the bad-bad idea of selling rollover-prone 4×4 behemots to the general public.

    *Or about the anti-Bauhasian “form uber alles” no-trunk, no rear-seat, fun but almost useless (i know, I drove one for a while) VW New Beetle.

    Look, sir: Sometimes outrageous cars become highly successful cars, because sometimes the public has strange ideas about what right and what´s wrong (or, putting it bluntly, is stupid).

    The SSR was simply a gamble. But, this time, buyers showed more sense than money than in the mentioned examples.

  • avatar
    Spaniard

    Hyundai went from the Pony (a Morris 1100 copy, by the way)

    You intriged me with this statement, philbailey.

    And you are right:

    http://pages.eidosnet.co.uk/~morrismarina/Korean%20Connection.htm

    Amazing!. And, yes, the humble Morris Marina was based on the underpinnings from the venerable Issigonis´ brainchild: The 1948 Morris Minor.

    http://www.austin-rover.co.uk/

    Yup. Hyundai started selling totally outdated technology.

  • avatar
    glenn126

    Hyundai didn’t even “assemble” a car (a Ford Cortina) until November 1968, never mind engineer and build one themselves.

    Yet they’re not ashamed of their past – but proud of it. Think of it like this – South Korea was smashed to pieces only 15 years prior to Hyundai starting auto assembly, and there was no Marshall Plan to help rebuild South Korea, as there had been for Europe after WWII.

    Go here http://worldwide.hyundai-motor.com/

    then go to the upper right, “Hyundai Plaza” click, then “Auto Museum” click, then “History of Hyundai” click

    Look at it another way. I’ve recently done some research, and only 5 makes of American automobile current in 1920 are still produced, and 4 were the top 4 producers that year, not coincidentally I’m sure. The fifth of the group was Cadillac. (There are some makes built in 1920 which “became” what is now Chrysler, etc., but I’m using makes going under their name in 1920 and names still used).

    In the order of 1920 production,

    Ford 806,040; Chevrolet 146,243; Dodge 141,000; Buick 115,176.

    Ford started in 1903; Chevrolet in 1912; Dodge in 1914; Buick in 1904.

    Now, look at the progress made by Hyundai since late 1968 vis a vis these five makes….

    Katie’s not so crazy to use Hyundai as a good latter day comparison to what can be done.

    The trick for the 2.8 is to do it while getting the barnacles of past experience off the hull… so to speak.

  • avatar
    BostonTeaParty

    The SSR was an over priced car that had more to do with the whim of a leader who thought it could be cool to have out there, good response to a concept car that never translated into sales. Katies right it needs new thinking, there are barriers that still need removing, and young blood is starting to take effect internally. It takes time, car design is like stopping an oil tanker, things dont happen as quickly as we would like but you can definately see changes. Mistakes have been painfully learnt and product is getting a hell of a lot better. like mikey said the glass is definately half full, and its going to get fuller.

    RF, Aveo and Corvette in the same show room, why not? you can get a low price mini and a hugely lavish 7 series in a BMW dealer? or a cheap Defender and an Autobiography Range Rover in the same showroom. Chevy is about covering all markets affordably and the Corvette is a Halo-esque vehicle. Its called product line-up. Do you want the Aveo moved further away in the showroom? I agree it could be hidden behind the reception desk until someone adds a bit of make up to make it look better while waiting for the Camaro to arrive….

    However i dont understand is how come europeans can make small cars, at a profit yet it can’t be done here. I guess thinking about it there are a number of reasons, workers dont get paid a ludicrous sum for putting them together as they do here (when will the UAW realise the big real world out there), there is nationalised healthcare which takes some cost away. But it still happens, there really should be a new way of thinking.

    I had high hopes that GM would beat the union down, the look on most strikers as they left said it all, they couldnt afford to be off work. There were frightened people trying to look bigger than they really were, like the school bully who finally realised the little kid he was picking on might actually have the chance to kick his ass and he was looking to his mates to get him out of the situation. There was too much showbiz to this strike, and i dont think the union negotiators have kept the rank and file in communicado, heard lots of interesting snippets of conversation over the last few weeks between UAW guys, all saying they were in the dark over what was going on and why vote for a strike which could potentially remove them from a job when not knowing what they were voting about!? I can’t wait to see the details on this deal to see the truth, to be secure for the future i feel we needed the VEBA and a pay cut and removal of the job bank. As for job security, lower wages or we move everything off shore, i just hope if necessary Rick and co have the balls to move more stuff out of NA if that what it takes. Can’t wait to see how the other 2.9999 react now.

  • avatar
    jdv

    Spaniard, the difference is all the cars you cite were priced for the mass market. The SSR is not.

  • avatar
    jdv

    BostonTeaParty: Define low price mini :)

    Now… how’s that compare with an aveo?

  • avatar
    BostonTeaParty

    jdv, about $10k difference (why bmw doesnt sell the mini one here i dont know) but the point being that you could get a 6 or 7 series for around $70k+, just showing the same example different brand, not such a daft idea after all.
    maybe there is hope for the old dog yet.

  • avatar
    Spaniard

    However i dont understand is how come europeans can make small cars, at a profit…there is nationalised healthcare which takes some cost away.

    Yup. And we have our own European Union Death Watch clock ticking. The whole rotten scheme is unsustainable on the long run. Uh, and it is a form of slavery.

    Spaniard, the difference is all the cars you cite were priced for the mass market. The SSR is not

    I did not known. Thank you for the info. In my mind the SSR was a bit above the PT Cruiser. I did not take the care to look at retail prices.

  • avatar
    Engineer2

    glenn126 :
    September 27th, 2007 at 8:19 pm

    The biggest thing the 2.8 need, though, is to put Deming’s teachings to use – yesterday!

    Glenn’s comment is SO good that I thought it needed to be posted again. America would be a much different place today if we would have listened 60 years ago.

  • avatar
    Landcrusher

    The Hyundai issue shows a lot about how we all think.

    First, we deride domestics for all the fleet sales and point out that it leads to depreciation and also leads us renters to believe they make lame cars. We never even go to their showrooms after the experience.

    At the same time, I had no idea how utterly decent the new Hyundai’s were until I drove one for a rental car. Now, I no longer wonder why anyone buys one at all. They seem like a good value.

    We often make up case rules based on results without actually knowing all the facts. The only thing we likely REALLY know about fleet sales is that it has seemingly hurt the domestics while helping Hyundai. Maybe it didn’t hurt either or help either, either. (extra points if you didn’t stumble over that last sentence).

    So here is the gem: The domestics should likely figure out how to use fleet sales as a marketing tool rather than a way to dump unwanted product. The day I get into a domestic rental that I like, will be the day I stop believing I will never buy one of their cars.

  • avatar
    Adrian Imonti

    Landcrusher: So here is the gem: The domestics should likely figure out how to use fleet sales as a marketing tool rather than a way to dump unwanted product. The day I get into a domestic rental that I like, will be the day I stop believing I will never buy one of their cars.

    Earlier this year, I wrote an editorial here on this topic (which in an act of shameless self-promotion I have linked below.) My basic thesis is that the primary problem with fleet sales is not with the low margins per se, but with the temptation of the Detroit automakers to dumb down the product because the margins are so low. Because the fleet buyers will buy the cars, irrespective of driving intangibles, but won’t pay a premium for those intangibles, Detroit doesn’t bother to provide those intangibles in the first place.

    Unfortunately for Detroit, 7/8ths of the car market is still comprised of retail buyers. It would be more cost effective in the long run to target products that would serve that 7/8ths, even if the margins on the remaining units that go to fleet are slim to none. The brand value created through that effort is vastly more important than is saving a few bucks in the short run that cost you in the end. Detroit has gone into a perpetual holding pattern with this pennywise/ pound foolish mentality and refuses to escape it.

    Adding option packages to a mediocre product won’t be enough, either. Air conditioning, power equipment and the like are now the norm for new cars being sold today, so the automakers can no longer differentiate a vehicle by offering features that everyone else is also offering. Even rental cars are actually decently equipped. They may lack high-end sound systems, leather and sunroofs, but they almost always have A/C and power everything.

    So the equipment levels aren’t the issue here. It’s really about the driving experience, something that you don’t need to be an enthusiast to appreciate or be willing to pay for.

    https://www.thetruthaboutcars.com/?p=2995

  • avatar
    Redbarchetta

    Adrian Imonti
    Great editorial, wish I had read it the first time around. I too had a sweet shuttle job working at Budget while I was in college. Best weekend minimum wage job I could ever have hoped for and I was only 20. I still miss that slackidazical place(we had multiple cars stolen right off the lot because they were totally oblivious to security). Mine was in the Cincy area moving cars from location to location and sometimes you got the sweet trip to pick up a car in a far away land and bring it back to home base. Ok where was I going with this.

    When I started there it was only Chrysler products, I think Plymoth was still alive then. All I remember is the Chryslers were actually drivers, didn’t hold up so great except the Alliance tank, but they were respectable drives. Cab forward design was ugly but made for a decent handling and ride. Then half way through Ford got there teeth into the company and all hell broke lose.

    The Ford products were abysmal comepared to the Chryslers, often not wanting to run properly let alone drive good. The Town Cars and Continentals were the only thing that made going to work fun anymore, until we got the Mazda’s.

    What a breath of fresh air. I would do my best to get a 626 or even a Protege whenever I had a choice, the old guys in the group often didn’t care they prefered the boats. I distinctly remember the 626 compared to the Sable being 1000 times nicer on the inside, decent radio. And the handling well lets say the Sable didn’t have any clue what that word meant. I don’t have enough time to dicuss the maintenence issue they had with the Taurus and Sable twins but needless to say they weren’t so happy they had Ford’s now.

    Oh well thanks for bringing back some fond memories. I still rememeber my high speed runs with the 626 or that scary as all hell 300 mile drive back in the Blizzard of 95 sliding all over the road in a Sable(I was doing 40 on the interstate).

  • avatar
    Dynamic88

    “Glenn’s comment is SO good that I thought it needed to be posted again. America would be a much different place today if we would have listened 60 years ago.”

    Or even 30 years ago. Or 20.

  • avatar
    PurpleCar

    Great for the death Watch series….

    http://www.theonion.com/content/news/ford_reintroduces_model_t_line

    Too Hysterical to be ignored

  • avatar
    Redbarchetta

    Oh my God that was funny. Your going to get me fired at work, oh well days practically over. I still can’t stop laughing. Thanks.

  • avatar
    whatdoiknow1

    The only reason that we talk about fleet sales being a bad thing is because the Big 2.8 have made it so!

    I have rented, Accords, Camrys, Sonatas, Mazda6s, and even some higher-end cars such as a g35s, and CTSs. None of these products are hurt by being included in someone’s reantal fleet. THIS IS BECAUSE THEY ARE ALL DECENT, GOOD, or VERY GOOD CARS!

    It just makes me laugh to witness the supidity of those suits in Detroit. Fleet sales, so-called fleet vehicles, and Detroit automakers all have an undesireable image because the overwhelming majority of the vehicles that the big2.8 sell to fleets are absolute garbage! Which in turn has done major damage to Detroit’s brands.

    What is wrong with those idiots? Damn near everyone who has the means to purchase an new automobile will find themselves at some point inside of or driving a rental or fleet vehicle.
    My mother (now retired) was a sales rep for several major US companies during my childhood so I know a bit about fleet vehicles. During her career she had numerous domestic fleet cars as company cars from Gm, Ford, Chysler. She was a very well paid women and the Big 3 did everything in their power to prove to her that she did not want to spend her own money on a domestic car.

    This summer alone I personally rented 3 cars, A PT cruiser, a Malibu, and a Jetta. The PT Cruiser was OK at best. Cheap but decent. The ride sucked because the engine felt like it was mounted on rubber bands, anytime you gave it some gas the whole car was upset.
    The Mailbu had the wife laughing and laughing, she could not believe it was actually a real car.
    From the looks to the dynamics she called it a “test platform”. I will get band here if I give my opinion on that POS.
    The Jetta was a very nice car, optioned up just like you would buy it from the dealer (it even had a sun-roof). It drove great had decent power and had the wife calling it a poor man’s BMW.
    Guess which car I came away from feeling like I could live with? Too bad about the VW reliabity.

    THE RENTAL FLEETS ARE EXCELLENT ADVERTISING!

    If GM had a bit of sense I should have been able to rent one of those new Enclaves or Arcadias. I check one out at the auto show but that is it. I would love to spend some time with what is claimed to be one of the better domestic vehicles but I guess GM knows that if they give us a chance to explorer their new products we will be just disappointed as before.

  • avatar
    powdermonkey

    whatdoiknow1 :
    September 28th, 2007 at 7:18 pm

    “THE RENTAL FLEETS ARE EXCELLENT ADVERTISING!”

    Can’t disagree there. I was in LA twice in the last month with a rental car on business.

    The first time I was given a Chevy Cobalt, what a crappy little car! It was slow, thirsty, and the interior seemed to be made of recycled soda bottles. When I returned it I was ecstatic to get out of that car and climb into a comfortable coach seat for a 6 hour flight to the East coast.

    When I returned 2 weeks later I was given a Kia Rondo. The first thing I noticed about this car was it was a V6? A rental? Then I saw the interior, this was no stripper, it wasn’t lavish, no leather, but obviously it wasn’t the bottom of the line model either. The 3 days I drove the Kia were enough to make me want to take a look at it when I am in the market for a new car for my wife next year. I was extremely satisfied with the car and it was with a bit of a wrench that i turned it in.

    In the end which experience would a car maker want a rental customer to have? That’s what the big 3 need to recognize. After this experience I will not look at a Cobalt when I go car shopping next, but I will look at the Rondo, I may not buy one, but I wouldn’t have even looked before this rental.

  • avatar
    KatiePuckrik

    I’m sure rental fleets are good advertising, but wasn’t the whole reason of GM easing fleet sales was because it was killing resale value?

    If this new UAW deal gives GM the cost cuts it needs then, what advantage will they have over Toyota? A customer has a choice between a Chevrolet Mailbu or a Toyota Camry, both cost around the same (thanks to the UAW concessions), both have similar quality and reliability (remember, this is fantasy!) customer goes for the Camry because holds its value better. End result is the same…..GM loses another car sale

  • avatar
    powdermonkey

    Katie,

    I agree that a rational consumer like you or I would buy the Camry over the Malibu based on resale. However there are a lot of irrational consumers out there. How else do you explain the sales numbers of makers like VW who have poor quality reputations and insanely fast depreciation. My last car was a VW, not because I thought much about quality or how much I could sell it for, but how much I liked the way it drove. My wife is insanely attached to the Nissan Morono (sp) she loves the thing and I may have to buy one soon, not because it it the best car or it makes the most financial sense, but because she thinks it’s cute. Irrational but human nature, we want what we want.

    As to the resale value being killed by the high numbers of big 3 cars in the rental fleets, I think that part of that is that the majority of those cars are the cheapest most bean counted examples of those particular models, the ones that the average consumer wouldn’t even look at much less buy. The huge number of those de-contented malabus etc. that are manufactured every year for the rental and fleet market are what draws down the resale value.

  • avatar
    ttilley

    Compy386 wrote: “The entire reason that GM (as well as Ford) have a poor small car portfolio is that neither one could make money on the products. So why invest millions in vehicles that lose money? That may have helped both companies retain market share, but it doesn’t help GM make money.”

    But GM and Ford *haven’t* retained market share, they’ve bled market share like crazy during at least the last 20-30 years, and they’re both losing money. How does this relate to an effort to build only those vehicles that either company can produce at a profit, market-share-be-damned? They don’t seem to be making money on behemoth-mobiles either, after accounting for money-on-the-hood.

  • avatar
    Terry Parkhurst

    The fact that GM management has agreed not to ship anymore jobs overseas – most notably China – was probably the biggest effect of the recent strike. Can they make that promise stick? That may be a rhetorical question.

    Much has been written here about Rick Waggoner; and at other posts about the new head of Ford and also the new head of Chrysler. There’s something in common with them all, and it is the main problem of managment in Detroit: they don’t understand the automobile industry.

    In the auto industry, you’re selling a fashion statement, as much as you’re selling a technical object. Look at how the cars at this very site are slammed, or championed, for their appearance. Of course, that is not unique to TTAC. It’s how people are about automobiles in general.

    That’s why the late Marshall McLuhan called cars “the mechanical bride.” Just as a woman attracts you, at first, because of her appearance, so too does a car. And as a woman continues to appeal to you because of her intellect and humor, so too does a car have to show some substance.

    GM, like Ford and Chrysler, has put all its product development money into outrageously big and dated vehicles, that only people with more money than brains or taste will buy – think NBA players or hip-hop artists or wannabes of both. The Escalade is a prime example. And yes, dealers and the factory make money off each of those they sell; but how many people can buy those now, or even lease them? Or more importantly, how many keep them long enough for the dealership network to make any money off service and parts?

    When a car such as the Pontiac G8 is as well known and respected, by people under the age of 35, as the Honda Civic or any Scion, GM will have won the battle. But unfortunately, that day seems as far away as the proverbial Second Coming.

    And when GM comes up with a winner, such as they have with the Pontiac Solstice, they don’t ramp up for the demand. One has to wonder how many people who couldn’t get their order for a Solstice filled in a timely manner, went to a Mazda store and bought a Miata, or even a Mazda3.

    As someone who grew up at a time when the main company that the U.S. Attorney General’s office considered a potential monopoly wasn’t Microsoft, it’s sad to see the possibility of GM closing down. But it could happen here.

  • avatar
    Dynamic88

    “In the auto industry, you’re selling a fashion statement, as much as you’re selling a technical object. Look at how the cars at this very site are slammed, or championed, for their appearance. Of course, that is not unique to TTAC. It’s how people are about automobiles in general.”

    “That’s why the late Marshall McLuhan called cars “the mechanical bride.” Just as a woman attracts you, at first, because of her appearance, so too does a car. And as a woman continues to appeal to you because of her intellect and humor, so too does a car have to show some substance.”

    With respect, I’m not sure this is an accurate description of cars or car buyers today – on average. Toyota, Honda, and Nissan all seem to run most of their vehicles through a dullifier at the end of the assembly line, yet they can’t produce them fast enough.

    I do think it works in reverse though – what I mean is if a vehicle is horribly ugly (as distinct from merely dull) I think people will avoid it. I got my first look at Ford’s new Super Duty Trucks this weekend. I’m not in the market for a large PU, but if I were, I’d avoid those things at all costs. They make the Dodge Ram look stylish and well proportioned. Overcompensating is what I’d think about any man driving a new Ford SD.

  • avatar
    GMrefugee

    Some good points made in the article and in comments above but I must disagree with the idea that GM will not take advantage of the eventual lower labor costs contained in the UAW deal. As you all know, GM uses product costs prominantly to drive their product plan. This is one reason why many recent GM vehicles have cheaper interiors, etc. Lower labor costs would help margins on future products either pushing more into profitability or allowing the product team to choose high quality componenets and material. Sure, GM decision making about product could still be considered faulty but the new UAW deal will help GM make both better and more profitable vehicles.

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