Pontiac Solstice Forum banner

1 - 15 of 15 Posts

·
Premium Member
Joined
·
7,210 Posts
Discussion Starter #1
How Detroit lost its cool

By relying on incentives, GM and Ford have lost ground to the imports

STEVE MAICH

A couple of summers ago, I was in the market for a new car. I really liked the Mazda Protegé, and the Volkswagen Golf. I considered a Toyota Matrix, looked at the Ford Focus and took a Dodge Neon for a spin. Eventually, I settled on an Oldsmobile Alero. It wasn't my favourite, but it was pretty good and the critics seemed to think it was a decent buy. For roughly the same cost as the others, the Olds came with more features -- never underestimate the appeal of power seats. Most importantly, it came with four years of interest-free financing. Free money always catches my eye.

It was worth enduring the unending stream of jokes about a guy in his 20s buying an Oldsmobile because I figured I had waded into the sea of automotive choice and plucked myself a bargain. Not sexy, but sensible.

I didn't know it at the time, but as I drove off the lot that day, I had unwittingly become a symptom of the disease that is killing General Motors. Millions of drivers, just like me, have bought mediocre GM cars over the past few years, mainly because the incentives made it so easy to do so. Ford and Chrysler have fallen into much the same trap: their cars didn't have to be great because they seemed so cheap.

Rather than promoting brands, quality and innovation, Detroit's Big Three carmakers promoted deals. Think the car looks boring or ugly? Have a cash rebate! Concerned about reliability? Look at our zero-per-cent financing! Don't like the handling? We'll throw in air conditioning at no extra cost! In the process, they managed to convince customers that American cars are an inferior product. These big companies, with their big unionized workforces and generous benefit packages, have seen their profit margins gradually crumble, and their prestige fade. Nobody brags about buying an Oldsmobile anymore, and that's a big reason why the Olds brand is being phased out. Last week, GM's vice-chairman warned that Pontiac or Buick could be the next brand to die if results don't improve soon.

Last year, for the first time, the Big Three sold less than 60 per cent of the new cars in the U.S. GM, which once controlled more than half of the U.S. market, saw its share drop below 25 per cent in the first few months of this year. Ford's share of the U.S. market slipped from 20.8 per cent in 2003 to 19.6 per cent in 2004, and sales are sliding again this year. Even in sport-utility vehicles and pickups, where the domestics have traditionally dominated, sales are slowing rapidly. Only Chrysler, thanks in part to the success of its 300 Series sedan, has managed to increase sales this year. But even it is losing ground to imports like Toyota, Hyundai and Nissan. Toyota passed Ford to become the world's No. 2 automaker last year, and most analysts think it's only a matter of time before it passes GM in global sales.

Banc of America Securities analyst Ronald Tadross rang the warning bell for Detroit in a recent report entitled Death of the Domestic Brands. He believes the problem goes far beyond Detroit's dependence on incentives to sell. North American cars are still significantly overpriced compared to the imports because they lose their resale value so much faster, he says. According to his research, GM, Ford and Chrysler cars lose about 19 per cent more of their value over three years than the imports do. Despite improved quality and reliability, American cars are still widely seen as ugly, boring and/or shabby.

Ford and Chrysler have already been through rounds of massive cost cuts, and now GM is going down the same path. The company is reducing production by about 10 per cent this year, and slashing its white-collar workforce by as much as 28 per cent. Tadross thinks even more layoffs will be needed to bring the company back to financial health.

But none of the cost savings will matter much in the long run unless the Big Three can produce cars that get buyers excited, and, so far, there's little progress on that front. GM is hoping that a new crop of models like the Chevy Cobalt and Pontiac Solstice will turn heads. Ford has introduced a new, retro-inspired Mustang with much fanfare. But the reaction in the automotive press has been ho-hum. Most agree Detroit has produced some good new cars, but what the Big Three need are great cars. Once buyers have been conditioned to think the only reason to buy domestic is to save money, it's tough to convince them otherwise.

Canadians have a lot riding on this race. According to the Canadian Autoworkers Union, about 57,500 people in this country are directly employed by carmakers. Of those, about 85 per cent, or 49,000, work for the Big Three. Ontario produced more vehicles than Michigan for the first time last year, so it's not surprising that we've already felt the effects of the industry's woes. Since 1998, about 10,000 auto assembly jobs have disappeared in Canada, and with major staff reductions now beginning at GM, that number is sure to grow.

In early March, GM unveiled a $2.5-billion investment in its Canadian facilities, including about $435-million in taxpayer money. The news was greeted with joy in the auto sector, but the rest of us have reason to worry about it. That money represents a major bet, with public funds, on a horse that's looking old and tired. Until the domestics can attract buyers like me with products rather than promotions, it'll be hard to get excited about our automotive future.

Read Steve Maich's weblog All Business
Link: http://www.macleans.ca/switchboard/columnists/article.jsp?content=20050404_103129_103129
 

·
Premium Member
Joined
·
5,691 Posts
How true. Ever since 1959 when Lee Iaccoca came up with "$59 for '59" to promote an easy payment plan for his Ford district (it's in his book) the mfgs promote payments rather than product. Look in Sunday's paper and what do you see? $99/mo, $199/mo, $299/mo, etc. Then you have to read the fine print to see how long, what interest, whether its lease or buy, extra cash or trade required. If you give me enough money down I can put you in an $85000 Caddy XLR-V for only $99/month :lol:
 

·
Mod Emeritus
Joined
·
7,468 Posts
achieftain said:
How true. Ever since 1959 when Lee Iaccoca came up with "$59 for '59" to promote an easy payment plan for his Ford district (it's in his book) the mfgs promote payments rather than product. Look in Sunday's paper and what do you see? $99/mo, $199/mo, $299/mo, etc. Then you have to read the fine print to see how long, what interest, whether its lease or buy, extra cash or trade required. If you give me enough money down I can put you in an $85000 Caddy XLR-V for only $99/month :lol:
I agree that incentives have hurt them, but when I look at the paper I see prices advertised all over. BMW 3 series for $X99 a mo, Porsche Ceyanne for $X a month. Honda Accord’s with low financing, etc, and all those cars are considered to be extremely good.

Incentives are a way to boost sales when they are sluggish, or a way to try and gain a few sales from another company with a better looking deal. The problem with GM is that they keep sweetening the pot. That $2000 carrot, turns into a $3000 bunch of carrots, and then up to $5000 carrot truck, and before you know it, they are blowing the car out with $7500 off the sticker price, and 0% financing for 72 months. That is far beyond common incentives. Its just a fire sale, plain and simple.

However, this is kind of like the chicken and the egg. Which came first? The image hurting incentive deal, or the mediocre product. I think it is the latter. Mediocre cars are what required bigger rebates, and mediocre cars are what hurts resale. The rebates and incentives are only a result of the mediocre cars.

Think about it. Why would a car have a bad resale value? The first answer a lot of people give is because of rebates on new ones. That is true to a point. If rebates make a car significantly cheaper, the used value gets dragged down to compensate. Who would buy a used car for the same price, or more, than a new one? However, the real question is why did the new car need the rebate? It wasn’t selling well, and simply wasn’t worth sticker price. Supply was greater than demand, and if supply is greater than demand for the new car, the used one will also have a greater supply than demand.

One other problem. Fleets. The domestics keep factories of low demand models humming by dumping cars cheap to fleets. This also really hurts resale values, because it just makes the supply of the cars that much greater than demand.

These types of fleet sales can be seen as cars with zero retail demand. Nobody would have bought the car otherwise, so GM unloads it to Avis. Avis uses it a year or two, and then sends it to auction where it hits the used car market. The car still has a zero retail demand (or close to it), because all the cars that were bought by the public are still around. There are litteraly thousands of these cars piling up in auction lots and on dealer lots across the country. So why would anyone pay a premium to get one, when everybody has one for sale? Resale plummets.

The answer. The big 3 could cut rebates. However, if the cars are not improved it would just lead to fewer sales because demand wouldn’t increase. In fact, at full price for their current cars, demand is bound to drop drastically.

So in the end, we are back to the product. The author is right. They need exceptional products. That will allow them to abandon fire sale incentives, drive up demand and resale values, and get their feet back under them. Their biggest problem, doing that with limited funds for R&D while maintaining market share until those products can be introduced to prevent further financial losses.
 

·
Premium Member
Joined
·
10,366 Posts
Ford has introduced a new, retro-inspired Mustang with much fanfare. But the reaction in the automotive press has been ho-hum./
But he also wrote the above and the public has answered with their pocket books for the Mustang.
 

·
Mod Emeritus
Joined
·
7,468 Posts
LV, your dead on, Mustang fans bought the car in droves. Its a success.

In fact, that is a funny quote from the author all around. I thought that the reaction by the press to the Mustang was much more than ho-hum. Motor Trend has been drooling over it. Car and Driver named it a 10 best car, and declared it the winner in a musclecar shootout vs the GTO, even though the GTO beat it in nearly every performance category. They just liked it as a complete package that much. The worst complaint from the press I have seen on it has been "light steering" followed by a few muffled moans about the solid rear axle. However, for the most part they have given that cost cutting job by Ford a free pass.
 

·
Registered
Joined
·
1,570 Posts
Fformula88 said:
One other problem. Fleets. The domestics keep factories of low demand models humming by dumping cars cheap to fleets. This also really hurts resale values, because it just makes the supply of the cars that much greater than demand.
Ever notice how it's almost impossible to rent a Honda or Toyota? Ya think fleet sales helps or hurts a brand image? The big three have to get at least thier primium brands out of the rental market. Fleet sales have been draging down the big three for decades. Rental fleets are no longer much of a promotion for the cars, just the other way around. Of coarse to make up for the lost bulk sales they will have to make the cars that much better, so they are more attractive to the general public.
 

·
Premium Member
Joined
·
5,206 Posts
AeroDave said:
Ever notice how it's almost impossible to rent a Honda or Toyota? ....
I beg to differ here. I travel a bit, and have rented (at AVIS) a honda civic, and at National, I've rented several Corollas and several Matri.... Matrices. Also had a Nissan Altima once.

'Course, I also get my share of "classics" (formerly Malibu), and Foci.
 

·
Senior Member
Joined
·
5,600 Posts
I still don't understand how Japan can produce cars more cheaply than the US. I understand how they manufacture cars in the US for less, by using non-unionized US workers. But the cars that are made in Japan by Japanese workers have to be very expensive due to the poor exchange rate between the dollar and the yen. I am convinced that the Japanese government subsidizes their car companies to price them competitively here.

Am I nuts? :crazy:
 

·
Registered
Joined
·
338 Posts
Fformula88 said:
Think about it. Why would a car have a bad resale value? The first answer a lot of people give is because of rebates on new ones. That is true to a point. If rebates make a car significantly cheaper, the used value gets dragged down to compensate. Who would buy a used car for the same price, or more, than a new one? However, the real question is why did the new car need the rebate? It wasn’t selling well, and simply wasn’t worth sticker price. Supply was greater than demand, and if supply is greater than demand for the new car, the used one will also have a greater supply than demand./QUOTE]

You're right about the amount of rebates offered on new vehicles, vs. one that is a year or two old. But, there is a twist to it. I'll use a GMC 1500, since I know the program, but the rest are about the same. A new SLE Ext. Cab 4x4 starts around $32,500 (base SLE trim.) Add 3500 in current rebates, plus another G if it's over 140 days old right now, (March Madness, ie Fire Sale,) and that takes it down to 28k. That's before you even negotiate. AND if you work at GM, knock another 3-4k off. You're buying it around 24-25K. Our local market moves 2-3 yr old trucks of the same build, w/ avg. miles for low $20's. Given that your average shopper can only go 60 mos on a 2002, but 72 on an 03-05, but can maintain full warrenty and "new car smell," which way would you go? To hurt a little more, the number of early terms. by employees taking less for thier trade than the guy w/o the discount drives the nat'l wholesale avg. down, thus decreasing realse. It's not so much an inferior product than it is the amount of discount eligible flooding the mkt every year or 2 by turning over a vehicle. Add in the "slant" of most auto magazines, which don't really help boost the domestic image, who else is there to help out?

Also, tonite on NBC, report was that domestic sales are down from 75% high to just above 60%. Now, that's a loss of about 5% each, but from when? There are more vehicles on the road now, people driving later in life, starting younger, owning more cars. In 1985, there were about a dozen major mfgs, and only around 450 models. Now, there are over 30 mfgs, and almost 1500 models.

I can go into real dangerous water and add that although the UAW was once needed to improve work conditions and have raised almost single-handedly
raised the std of living in the US, they are slowly putting themselves out of work. I cannot count the number of times I've had a "discussion" with a UAW worker that started a conversation by saying I should thank him for the wages I earn. :banghead: If any of them had realized that I have more education, prolly, and have to actually WORK at my job to keep up with them raising inflation, they would stay at their on-the-job poker game. I know that not every UAW person is like that, it's only the one's you hear about. I need a break, a beer, and a smoke. Will continue if anybody cares for me to, and I hope I didn't ruffle any feathers...just getting it off my chest. Anybody is free to check out numbers, going off of memory. :grouphug:

Steve
 

·
Registered
Joined
·
3,266 Posts
We all agree that better product is needed, but style has a lot to do with it, and I think things are seriously improving there. (go ahead, get your Aztek jokes ready.)

As I was sitting behind a nice Crossfire convertible in traffic today, I realized that for the last 5 years, all the cars that really peaked my interest, or caught my fancy, were domestics. I tried to think of any asian import that had moved me in any way during that period, and the only thing I could come up with was the Murano.

The RX-8? Pretty on paper, strange in person.

The new Z? I'm sure it would be a blast to drive, but as Randy Jackson would say, "It's just allright for me, dawg"

Toyota anything? Nada.. Maybe the Scion B, a little.

Mazda Miata? New design seems too evolutionary, not revolutionary.

Honda? S2000 is certainly nice, but doesn't grab you when you see it.

On the other hand:
PT cruiser. Seems dated now, but loved it when I first saw it. Heck, for that matter, everything at Chrysler seems stylish these days, 300, Crossfire, even the Pacifica is pretty cool.

Mustang? Love it. Who doesn't? If they had a Bullitt edition out, I might not be here.

New vette? Awesome.

The new Charger, the Magnum and the Viper all turn my head.

And of course, I've been in love with the Solstice since the concept.

While it's true that the imports are gaining market share, I think the domestics are starting to come back strong with 'wow' share. If GM can keep more innovative products like the Solstice and the Cobalt coming, and they and Ford can keep up with Chrysler in the style department, I think things are going to get better.

But what the Heck do I know..
 

·
Mod Emeritus
Joined
·
7,468 Posts
Aztek, I think the issue isn’t exactly liking or disliking the styling since that is will be different from person to person, but simply having a distinctively styled vehicle that can stand out from the background. You may not like some of the distinctive imports, but many do. The 350Z has been a big success for Nissan. In respect to having distinctive vehicles, I do not think the imports are really behind.

The domestics have them too, but I will separate Ford and GM from Chrysler. Chrysler has applied distinctive styling to its volume vehicles, and has managed mostly successes. GM and Ford on the other hand, have made their niche vehicles distinctive, but have also kept their volume players more conservative.

Cobalt is a great example. Its gotten good reviews, but in terms of styling, the car is hardly more than an evolutionary update of the Cavalier’s styling. They did not take any chances on this one.

Its very hard to be successful with very distinctive styling like a Chrysler 300’s on a volume car, which is why they tend to stay conservative. For every 300 that is a home run, you have an Aztek that is a strikeout on three straight pitches (no offense intended).

I agree GM should try to take a few more styling risks on some of their cars (especially Pontiac with its sporty image, more aggressive/distinctive styling may be accepted better than say at Buick). However, it is a risky game to play too.
 

·
Registered
Joined
·
535 Posts
Yeah, I have to disagree with Azteck somewhat. I think the Imports play it safe styling wise with their volume platforms, but step out correctly with their more flamboyant vehicles. The ones you mentioned, S2k, 350Z, RX8, G35, along with many others are well received for their looks by most I have spoken with personally. The domestics have made some nice looking cars as well, however when I count those as a percentage of all the models they have it seems slightly less frequent to me. Also, those recent domestic successes don't seem like values to me. The LX platform, while I find them both appealing are over priced for my appetite. Mustang? I like the design, but the stampings look cheap to me. The Solstice is the only domestic I can think of in a long while that I truly desire and think the price is fair.
 

·
Registered
Joined
·
3,266 Posts
I see your points guys, I wasn't really trying to diss any of the imports, I think the models I listed are good looking, they just don't get that 'holy cra*! Where can I get one of those!" reactions from me personally, like most of us here had when we first saw the Solstice or Sky.

I guess what I'm really trying to say, is just that I feel optimistic about domestics for the first time in a long time, and it's styling that's making me feel that way.
 

·
Senior Member
Joined
·
5,600 Posts
Ford has introduced a new, retro-inspired Mustang with much fanfare. But the reaction in the automotive press has been ho-hum.
In fact, the new Mustang has gotten universal rave reviews in every magazine I've read in the last 2 months. Absent minor qualifiers such as the live rear axle and hard interior plastics, all else sings high praise of the Mustang. Ho-hum my butt. What a crock. :cuss:
 
1 - 15 of 15 Posts
Top