U.S. Auto Makers: What In Tarnation Are They Doing And How Can They Get On The Profitable Path Again?

 

By Bernard Levy

 

If I had chosen Jim Penn to write this column, he might have opened with, “Step right up, folks, and welcome to the Kingdom of Mismanagement.  Watch your step and avoid those formidable heaps of red inked financial reports and billion dollar losses.  As we approach the Hall of the past captains of automobile industry, please note there are some that have received punishment in the form of reduction in rank to privates and corporals of industry.”

 

Yes, it is the Kingdom of Mismanagement as leadership, particularly over the past five years, changed direction and commitments more frequently than their introduction of new models.

 

I’ve followed the American automobile industry for years and have accumulated heaps of research, statistics and market analyses.  Yet, all a person needs to know can be found in recent headlines from mainstream media: “Car Dealers Keep Discounts Rolling;” “Auto maker (Ford) Recovery Bid Intensifies;” “U.S. Cars Slip in Durability Study;” and most recently, “Three Carmakers (General Motors, Daimler-Chrysler AG, and BMW) Pool Efforts on Hybrids.”  Combine these headlines with other articles, newswire and industry blurbs announced reductions of SUV production and the probability that a substantial interest in General Motors will be sold to foreign interests, and you’ve got a good picture of the U.S. auto industry today.

 

I’ve never been to the corporate offices of Ford and General Motors, but I can sense that their executive “suits” work in environments of unreality.  I don’t list Chrysler as a U.S. manufacturer any more, since it merged with Daimler, but it should be included because many of its operations are in the U.S. including Freightliner, manufacturer of one-third of the trucks on our roads.

 

Let’s cut to the chase - why is Detroit in such a mess?  How can companies with such magnificent financial and technical resources fail so readily and often?  Ah, let me count the ways:

 

 

 

 

 

 

There comes a time in every industry when a saturation point appears.  In the olden days, perhaps six to ten years ago, many car owners replaced their vehicles every one to three years.  That no longer is the rule of thumb for most of us working stiffs.  True, the wealthy continue to update their vehicles on a much more current basis.  I daresay that a significant downturn in the economy will produce major automobile loan defaults and raise havoc with finance companies’ bottom lines and new car sales.

 

China and India are slated to be (they are already) the future major growing auto markets.  U.S. manufacturers sought for many years to establish beachheads in both countries, but it’s now evident that China and India are producing their own vehicles for their vast, unsaturated markets, as well as export.

 

Additionally, it seems that the continuing love affair between the automotive industry and the oil companies is working to the detriment of the manufacturers.  I do know that the auto industry lobbied successfully for years with our federal government to relax mile-per-gallon standards.  This has proven to be a very short-sighted strategy because outside influences, circumstances and forces beyond most everyone’s control are substantially determining the cost of fuel now and in the future.

 

I want business to succeed.  My attitude goes back to my CPA-auditing days when I would, during an audit engagement, advise businesses on how to be more profitable and competitive. 

 

You may raise the question, “What should Ford and GM do?”  Simply attend to all of those bulleted items above.  Quit reinventing themselves and do business in a continuing businesslike manner.  Recognize market opportunities, both here and abroad, and take advantage of them, concentrating on the vehicles that will sell in foreign countries.  Our long love affair with the automobile is one that many other nations have not yet fully embraced.  The auto manufacturers need to learn from history and experience and stop making recurring mistakes. 

 

And most of all, understand and employ three necessary business principles:  know and respect thy customers; know and respect thy competitors; and know and respect thyself. 

 

Business is really simple; people make it complicated.