I haven't had an email from my favorite ascot-wearing automotive journalist in quite some time. Yesterday, I held off pinging Jerry– i.e. blogging his Forbes' rant "What Auto Recession?" In this well-timed work, the automotive essayist argued that healthy sales abroad are a suitable salve for domestic doyennes depressed by Black Tuesday. I let it be, because it's so not true. On any level. Today, Mr. Flint has a prescription for Detroit. "Time for Plan B" reads a bit like Plan 9 From Outer Space. Step 1: luxury cars. "Instead of milking big SUVs for profits, Detroit needs to build more cars rich folks will pay big money to own." Step 2: export. "The U.S. is turning into a lower-cost production base… If Detroit can build a serious export business, it will expand the variety of cars it can profitably build." Step 3: build $30k economy cars. "Look at the Prius hybrid-electric vehicle: Without the fancy powertrain, it’s a $16,000 Toyota. Yet buyers wait in line to pay $26,000 for it." As I pointed out in yesterday's GM Death Watch, it's at least three years too late for Detroit to do anything but suffer. Still, it's nice to know our man Flint's thinking outside reality the box.
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Jerry is a man of the 20th century. His thinking cannot evidently adapt to the realities of the 21st. He is like alot of the detroit crowd. Where is the leadership for this century?
He has a point, in as much as he is in accordance with the Truth of the Day. Here’s how JJ Cramer put it in May, “The New Reality: The U.S. Doesn’t Matter”:
“Even GM and Ford get it. The big takeaway for the multi-billion-dollar GM loss isn’t that the company is losing money, it’s that the company is, radically, weaning itself off the U.S. market. About two-thirds of their business is going overseas. Either they solve their production/union problems in the U.S. or they just give up and leave.
(…)
This is a phenomenal shift, a no-longer-grudging recognition that how we sell in this country doesn’t even matter. Our best companies have adjusted and recognized the reality: The U.S. is not a great place to do business.”
Yet: what overseas business for Ford and GM? Granted, Ford has some excellent product. GM in contrast, has Opel and Daewoo.
So is Detroit now getting its business advice from the Underpants Gnomes?
Step 1: Build expensive luxury cars that few people can afford
Step 2: ?
Step 3: Profit!
Martin, I’m sorry but I couldn’t disagree more. Toyota and Honda are doing good business in the U.S. I think if anything, the U.S. is not a great place to do business incompetently – which Ford, GM and Chrysler have discovered.
IMO, they’re only weaning themselves from the U.S. market because they totally failed to solve their product/production/union problems.
Yet an old automotive journalist sticking with GM’s old management of denial and misdirection. Still stuck in the heyday of Detroit even though it is long gone.
In others news, NickR decides to challenge Chuck Liddell for his belt. ‘I am in pretty good shape for a guy my age’ said the confident sounding 42 year old. ‘I’ve watched the UFC on tv and it doesn’t look that hard. Besides, I’ve been taking karate at the local Y.’ Chuck’s spokesperson could not be reached for comment.
This is a great plan. Sell stuff that doesn’t exist at extraordinarily high prices. I mean, what’s not to like?
For all that he is bashed, Bob Lutz has correctly stated that the domestic auto industry is too large for its customer base to carry. Too many factories, too many vehicles produced, too many dealers.
Due to the weak dollar, US exports now enjoy a significant price advantage. However, that won’t overcome obsolete engineering and poor quality.
Martin, thanks for making my day.
I think you summed up the Detroit carmaker business plan succinctly.
Martin: The U.S. is not a great place to do business.”
The US market is obviously down right now, but ask Honda and Toyota what percent of their global profit is generated in the US. I haven’t heard it said very recently, but a few years back the number was like 70-90%. The Japanese domestic market is cratering, and Europe is much more competitive. Why are Fiat, Alfa, the Chinese, Renault, etc. itching to get into the US market?
If you can reach an effective scale of economy, the size of the US market is still tantalizing, and potentially, profitable.
Bob Lutz’s comment is right there with the Captain Obvious statement of the day.
Never mind that GM, Ford, and Chrysler handed the car market to the Japanese on a silver platter by focusing on trucks and SUVs. Small cars can be and are profitable for other manufacturers.
Hey, sorry if my posting was ambiguous, I was just quoting James J. Cramer, of thestreet.com — that loudmouthed but smart stockmarket guy from TV.
How would I know whether the U.S. is a great or a notso great place to do business, I find it confusing enough to do business here in Germany.
What I was trying to say: guys like Cramer (and maybe Flint) are observing that the captains of American business are shifting their focus to overseas markets, because that’s where the easy money is. At least, that’s where they think the easy money is.
Martin, I should have (and meant to) quote the original source.
The luxury car business is in the process of following the SUV business into the ground. So they won’t be a solution.
It’s not just gas prices. It’s also the economy. When people don’t feel wealthy, they don’t feel the need to express their wealth with a fancy badge.
It’s 1987 all over again.
Jerry is a man of the 20th century.
I’ve been reading his column for years — Jerry is a man of the 1950s. I’ll bet the cosseted Detroit execs love him since they share the same Eisenhower-era mindset.
The US could be a major export platform at current exchange rates — BMW and Mercedes send substantial volume overseas from their SC and AL plants. But that would require building well-engineered, reliable, high-quality vehicles that appeal to international buyers, and no decades of red ink, no force on earth seems able to coax much of this type of product out of Detroit’s byzantine bureaucracies.
I can see why Detroit is in trouble and has been unknowingly for a long time, when Jerry (I have my “ass caught” around my neck) gives us this insight into Detroit’s group think. Plus we have the idiot Hargrove blockading GM Oshawa screaming “It’s not fair” and threating terrorist attacks on GM with his foreboding “Watch us!” when asked what power and what the union will do. I want GM to survive as well as Ford and Chyrco and this has been a none symbiotic relationship between two incompetent and avarice groups for many years. I feel bad for North America today as we all will suffer in the future.
NickR: Liddell has no belt :) Well, unless you mean the leather one he wears to hold up his pants.
Michael Karesh: It’s not just gas prices. It’s also the economy. When people don’t feel wealthy, they don’t feel the need to express their wealth with a fancy badge.
It’s 1987 all over again.
Actually, it’s worse, because in 1987 energy and food prices were holding pretty steady.
We are on a monthly contract with the oil company (our house is heated with an oil furnace). The contract renews in June for the year. It looks as though prices have almost DOUBLED from the previous contract.
Couple this with $4-a-gallon for regular and escalating food prices, and we won’t be buying even a Civic. And my car, at least, is paid for, and would still be reasonably desirable as a trade-in (2003 Accord EX sedan with the four-cylinder engine). But there is no way I’m committing to a new car in this economic climate.
I agree with the basic premise though. If your business costs are relatively high, you shouldn’t be competing in the value market. You should sell more for more, the way BMW does.
In other industries hurt by the lower production costs abroad, the surviving US companies are basically specialty guys now (like ‘environmentally friendly’ ceramic household items and stuff).
Well, I agree that there’s not a chance in hell that the domestics can build their way out of the hole they’ve gotten themselves into, but Flint’s ideas really aren’t too far off the mark:
Step 1: luxury cars.
Face it — if we continue to head towards ten-dollar or fifteen-dollar gas prices, “average citizens” will be out of the car market, entirely. The top five percenters will have all the money, so there’s no reason to build anything but top of the line luxury cars, period.
Step 2: export.
Well, again, just incredibly unlikely, but as the US heads towards becoming a third-world country, perhaps indeed we could start building cars to sell to first-tier countries, like China.
Step 3: build $30k economy cars.
Actually, this is the most reasonable argument here. About the only reason that people haven’t gone full-tilt into truly fuel-efficient cars is because they have been insufferable, cheap-ass tin cans. Put Camry/Accord-style comfort into truly efficient, smaller vehicles, and I think you’ll be able to sell all of those vehicles you can produce. Look at the extraordinarily high new-generation Corolla sales as relative proof of this. Civic is also well up now, isn’t it? Bottom line, these are much more comfortable cars than the little penalty boxes, and they get better mileage than most of those little tin cans, too.
Though, I suppose that’s the whole story already told, eh? These cars are on sale NOW. As usual, the domestics are standing there with their pants down, while the imports are SELLING CARS.