Saturday, December 6, 2008

Marketing can't solve everything

The big three American auto manufacturers have finally found a problem that they can't market their way out of.

With GM, Ford and Chrysler going to the government with hats in hands, many American are wondering whether a bailout would actually save the American auto manufacturers or just put a band aid on massive gash. So far, I see no reason to throw more money at companies that continue to prove why they can't run their businesses. And I'll tell you why.

American auto manufacturers simply create an inferior product. They are designed to last half as long as their Japanese counterparts. A car is a life-changing expense. If you know you can buy a Toyota that lasts 100,000 miles before you encounter major mechanical problems for the same price you can get a comparable Chevy that will start getting its problems around 50,000 miles, it's a no-brainer. The big three often tout their highest ratings in "initial quality." For anyone who really knows cars, they know this is an almost worthless characteristic. Initial quality is how nice the car is the moment you drive it off the lot. It will never be that nice again, and it's amazing how nice you can make something if it doesn't matter how long it lasts. And while a Japanese car may not be quite as shiny off the lot, consumers know that the knobs and seat belts won't be breaking at 30,000 miles.

So, what have the big three been doing to try and sell more cars? Well, they have NOT been promoting their fuel efficient models. While they do now have lots of vehicles with great gas mileage that's comparable to foreign vehicles, they aren't spending their marketing dollars on promoting those vehicles. They also aren't advertising their hybrids, though I don't know if I can blame them. While Toyota made a small car hybrid to create one of the most fuel efficient cars on the road, For and Chevrolet are making hybrids out of trucks and SUVs. So, what are the big three spending their money to advertise?

TRUCKS. TRUCKS AND SUVs. How dense do you have to be to spend all your marketing dollars on advertising trucks and SUVs right now?

First, they're the worst performing categories in all of auto sales right now. I get it Detroit, they were your high-margin bread and butter, but those days are over. Stop crying over it and trying to find new ways to market these gas guzzlers.

Second, no one believes gas prices are going to stay down. With gas available many places for prices we haven't seen in nearly a decade, you might think this is the time to sell the guzzlers again (I won't even touch how they're bragging about 20mpg ratings). It's not. America had $4/gallon gas for long enough, it's worked its way into our psyche. A shift has been made. Moreover, most people just believe the low gas prices are a function of the crippled economy and are sure gas prices will go right back up as soon as things recover.

Third, they're still trying to market their way out of the problem instead of focusing on their inferior products. Are they spending money on R&D to raise quality and tell us about that? No. They're trying to sell us subscription services like OnStar and XM Radio. People want a car to be as close to a one time expense as possible. Stop jamming them full of equipment that will lay there like a lame duck after our free one-year subscription is out.

Fourth, there are WAY too many brands. Even with a few shuttered over the past decade, the big three have more brands than you can count on one hand. GM does NOT need Chevy, Pontiac and GMC. GMC trucks are the exact same trucks as Chevy trucks, just with another name badge and endless overhead from separate dealerships, separate marketing efforts, and so on. Pontiac is the same way- they're just Chevy cars with a different badge and stupendous overhead from supporting another brand. Why not follow the Japanese model? Toyota only makes Toyota and Lexus. Toyota is the general auto brand and Lexus is for luxury. It's the same way with Honda/Acura and Nissan/Infinity. Why not narrow it to Chevy/Cadillac and Ford/Lincoln? Then you could spend the money from a huge number of redundant brand to build single brands. Imagine tripling the money you could use to promote a single brand. That's smart money.

Fifth is actually less of the auto industry's doing but that of the unions. If I knew people could make $75/hr operating a factory press and getting paid 96% of my salary for years after getting laid off, I might not have bothered taking on thousands in student loans to get into an industry that starts people at half of what a teacher makes. If the unions don't loosen up on their outrageous requirements, (which result in thousands more per auto produced in labor costs than foreign competitors) they might not have an industry to work for.

That said, do I have anything good to say about them? Yes. I think the big three CEOs committing to take $1/yr salaries if they get government funding is a good step. I think them selling their private jets is a good step, but these are both largely symbolic measures. I think the auto workers' union renegotiating contracts to lower labor rates significantly over the next several years is a big step in the right direction. Hopefully the Chevy Volt is everything it's supposed to be and that our guys will start taking some of their marketing cash and spending it on R&D to make better quality vehicles. Most important to is that I believe the big three have it in them to be great again. They'll just have to cut the corporate crap, face the realities and allow real progress to happen. Here's to hoping they can get it together.

For my part, I believe this has been coming on for a long time. Ever since the gas crises of the 70s and 80s allowed Japanese and European cars to make significant inroads in to the American auto market, American auto makers have been sticking their heads in the sand.

No comments: