The Auto Industry

In the 1993 film In the Line of Fire, Clint Eastwood’s character makes reference to the fact that everyone has their “pet theories” about the Kennedy assassination. “How it was the Cubans, or the CIA, or the white supremacists, or the Mob. About whether there was one weapon, or whether there was five.” In a similar way, everyone seems to have a pet theory on what caused the meltdown of the US auto industry. Some say the union. Some say inefficient operations. But the most common reason that “everyone knows” is that Detroit has been going for years, making cars and trucks that the American people simply don’t want to buy. If this is true, it’s a powerful image: three venerable mega-corporations racing forward while completely out of touch with the American consumer.

By now, you know what I have to say: it doesn’t hold up to scrutiny!

First of all, the idea that Detroit makes only bloated, gas-guzzling monstrosities while Asian and European manufacturers make high-tech, fuel-efficient cars for the modern age is ridiculous. Automakers in every country have to compete based on what is on the market. So where we have the American SUVs like the Chevy Tahoe and Jeep Wrangler, we also have the Nissan Armada and Toyota FJ Cruiser. Likewise, the Honda Civic and Toyota Camry have the Chevy Impala and Ford Focus to compete with.

Let’s examine the car-buying habits of Americans in the first eleven months of 2008. All sales numbers are from Forbes.com contributor Jacqueline Mitchell. The data represent major consumer automobile brands and exclude high-end luxury and performance vehicles. And all comparisons are in terms of units sold, as opposed to gross sales dollars.

To start with the losers, the worst-selling car of 2008 was not an American car, nor was it an SUV. It was an Asian minivan, the Hyundai Entourage. Despite naming a car after a supposedly popular series on HBO, Hyundai sold less than 5500 of these vans – down from 16,000 in 2007. Still, SUVs made up eight of the ten worst sellers this year, including five American models and three from Asia. If we can equate the decline in SUV sales with the increase in gas prices, it means gas prices finally reached the tipping point. I have said before that, while gas prices are an easy thing to complain about, they were of little real consequence to most people, since consumption was not affected. With the highest highs we saw this year, there has been a change in the real demand for gas as people changed their driving habits or their car of choice. With that in mind, it’s not surprising to see the SUV decline in popularity this year; although one has to wonder what will happen if gas prices stay low.

As for the leaders, what car would you expect to see in the top slot? The Toyota Prius? The VW Golf? The sentiment expressed at the top of this article would imply those little cars would be high on people’s lists. However, neither of them made the Top Ten. You may be even more surprised to learn that the top two spots were held down by American vehicles – trucks no less – the Ford F-150 and the Chevy Silverado. Between those two, over 900,000 units were sold. What can we interpret from two full-size pickups leading the way in US auto sales? Once again, fuel economy is not the most important factor for people buying cars (if it were, everyone would drive a Geo Metro like me). While demand for the SUV may be somewhat elastic, some consumers just need a truck, regardless of gas prices. Could this also mean the American auto industry is not quite so out-of-touch?

Indeed, the top two spots were held down by Detroit, as were five of the Top Ten. Three of the American entrants were pickups, and the other two were the Chevy Impala and the Ford Focus. All the imports on the list were Japanese passenger cars: Honda Accord and Civic, Toyota Corolla and Camry, and Nissan Altima. Outside the Top Ten, there are other bright spots for Detroit. The Dodge Caravan/Chrysler Town & Country were far and away the best selling minivan in January, selling 17,186 units to Toyota Sienna’s 10,406 and Honda Odyssey’s 8,746. And while the Toyota Prius may have been the first hybrid to the table, there have been advances in hybrid technology that out-innovate it in the Chevy Tahoe, the Saturn Vue, and the Ford Escape.

Let’s look at marketing. In recent months, there have been numerous ads released by Toyota to show their trucks as all-American, tried-and-true, legitimate work vehicles. One can imagine that Toyota wants to capture market share in the lucrative full-size truck market. Also, Chevy has been putting out a series that shows innovations in the so-called green vehicle market. These innovations include the afore-mentioned Tahoe hybrid, the line of Flex Fuel vehicles, and the Chevy Volt plug-in car. Since neither of these ad campaigns seem to have had an effect on the consumer market, perhaps Detroit’s bailout can come by replacing TV commercials with something else…

…like telemarketing. Imagine this:
“Hello.”
“Hello, may I please speak to Mr. Wilson?”
“Speaking.”
“Sir, I’m calling on behalf of Chrysler Automotive. Do you currently own a car?”
“Yes, I have-”
“Well, we can offer you a great deal today on a Dodge Grand Caravan, with no money down and 0% APR for 72 months.”
“Actually, I-”
“And please don’t forget that the Grand Caravan has stow-n-go seating, a powerful V6, and room for seven.”
“That’s the whole-”
“In fact, we recently sent you a mailer on the Grand Caravan. Have you received this mailer?”
“I’m not sure, but-”
“Well, it’s a great car for kids. How many kids do you have?”
“None! That’s why-”
“Please, sir. Everyone has kids these days. How many shall I put you down for?”
“Fine. I have seven. Now will you-”
“Oh, well then we can set you up in our 15-passenger Dodge Sprinter. Excellent choice, sir.”
“No, I-”
“What we’re offering today is a no-risk trial that you can cancel at any time within the first month. Should you decide to keep the van, we’ll bill you standard MSRP plus tax, license, and docking fees. Does that sound all right?”
“No, actually, I don’t-”
“Well, sir, this is a free trial, and what I can do is offer you the reduced restocking option in the unlikely event you choose not to keep the van. Let me put you on hold while I run your credit card…”

Perhaps not. In any case, let us not be too hasty in assigning blame on the product offering made by Detroit. A significant number of Americans are still buying.