Former GM Economist: Detroit Ignored Demands For Efficiency

by Edward Niedermeyer

October 27th, 2009 6:42 PM

former gm economist detroit ignored demands for efficiency

Walter McManus, former GM economist and current head of the Automotive Analysis division of the University of Michigan Transportation Research Institute, wants you to know GM’s SUV strategy of ignoring efficiency as a marketing input was his fault. In an interview with Energy and Environment News [via Edmunds Green Car Advisor], McManus explains how surveys in the 1990s showing consumers did care about efficiency were ignored:

The survey would estimate that people would estimate fuel economy fairly highly. Being a good economist, I said, ‘No, they don’t,’ and I changed the results. There was a systematic bias against such results. Our job was not to seek the truth, but to justify decisions that had already been made… It’s my fault they had the wrong vehicles until now

Can you say culture issues? McManus’s explanation for the insular attitude is a familiar refrain, namely that decisions “are being made by upper-middle-class white males, by and large. They don’t understand that the customers are not the same as they are.” Now that gas prices have made efficiency impossible to ignore though, McManus sees change coming.

People have a hard time thinking about their fuel savings. It’s hard for people to understand the abstract, that a mile per gallon means this many dollars saved every month. But if you actually start experiencing by driving the vehicle, then you understand it.

And for the domestic automakers who buried their heads in the sand on efficiency, declining market share is having a similar effect.

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Pch101 on Oct 28, 2009
Here they seemed to actually do what they thought was right. And in most ways, at that time, I think they were correct. The point is that the automakers should not be in the business of being "right" or "wrong" about predicting future oil demand. They simply don't have the ability to reliably predict the future. For the sake of simplicity, let's divide the consumer vehicle market into three basic segments: gas guzzlers, gas misers, and the stuff in the middle. At any given point, there is some demand for all of these. The answer is to provide a good product for each of these segments, so that all three buyers have something worthwhile from which to choose, and to combine that with flexible production lines so that the company can change the volume and ratio of production in order to match the market. There was nothing wrong from a business standpoint of GM selling SUV's. The business problem is that they had nothing else to sell, and no ability to easily switch from SUV's to smaller vehicles if and when the market changed. It really didn't matter how the market changed. There was simply no way for the company to adapt to **any** changes in the market, of any kind. A completely inflexible system, operated by completely inflexible managers. No wonder they can't hack it; the management talent isn't there.

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Don1967 on Oct 28, 2009
I’ve told the story before, but it’s worth repeating in this context. In the early 1990s I and many others attended a petro-organised Peak Oil conference. On the way out we chatted with some GM (or Detroit at least) power-train guys who called it “bullshit” and stormed off. I always imagined the Toyota/Honda guys sitting up the back quietly taking notes. Actually GM was right to scoff at "peak oil" hype in the early 1990s. They made a ton of money on SUVs for years after that conference, whereas Honda and Toyota missed that boat. GM's mistake (among others) was in failing to develop its non-SUV products for when the SUV craze would inevitably end... oil bubble or not. The company succumbed to new-era groupthink, and got lazy. The 2006-08 oil bubble did not prove Peak Oil Theory any more than the 1998-2000 dot-com bubble proved the existence of a New Economy. Most theories which try to rationalize price bubbles are bullshit, and calling them so is the most intelligent thing to do.

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PeteMoran on Oct 28, 2009
They made a ton of money on SUVs for years after that conference Yeah, that's the American spirit. Damn the torpedos and screw the customer. They won't remember that they ended up with worthless oversized vehicles when (apparently) other companies were thinking a bit more deeply. whereas Honda and Toyota missed that boat What did they miss? Camry and Accord were two of the strongest sellers during that period. Profitable too. While Corolla was (is?) the "most" popular car in the world. Toyota and Honda grew faster than any time in their histories, and established the product leadership they have now. GM’s mistake (among others) was in failing to develop its non-SUV products for when the SUV craze would inevitably end ... and thinking they could just arrive on the scene claiming "well, we knew how to do fuel efficiency after-all". The 2006-08 oil bubble did not prove Peak Oil Theory .... calling them so is the most intelligent thing to do. Conservation isn't bone-headed. Recognising that an item's supply is finite for provable reasons and taking steps early to avoid the consequences is much more intelligent. That would involve thinking past this quarter and being able to understand what is meant by "scientific theory".

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Rpn453 on Oct 29, 2009

I don't blame GM for selling people trucks and SUVs that customers wanted to buy. I do blame them for not making a competitive small car. When I bought my Mazda3 in 2004, it was competing against the Cavalier and Sunfire. Those cars were even cruder than the '87 Grand Am (RIP) I was replacing.

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