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What Will the Auto Industry Do?

By on Nov 28, 2008 in Blog, Consulting, Video | 5 comments

This past week was an interesting one for our video team. We covered the press days of the Los Angeles International Auto Show. For anyone paying attention, the word “automobile” has shrunk from ten letters to a four-letter word. GM execs showed up on Capital Hill with a Tin cup and the napkins from their private jets used to transport them to D.C. No movie script would conceive of such PR stupidity.

Ah, Houston... we have a problem...

Ah, Houston... we have a problem...

So, what about LaLa land? Was the auto industry going to cave in this most auto-driven part of the country? Or, would greed and personal need win over and a huge wave of interest prevail? It was interesting, as I said – and the answer included a bit of “yes and no” to the posed questions herein. The mood was somber overall. But, many manufacturers were not down in the dumps – they were working diligently to develop sales and marketing strategies around strong products. Subaru, Audi, VW, BMW, Mini, SMART, Honda and Toyota (among others) were all very positive about their new products and were looking forward to the new year. Manufacturers like KIA and Hyundai are making big strides forward, and lux brands like Lexus are solidifying their customer base. The era of the niche vehicle is clearly here.

The VW Jetta Diesel won the “green car of the year” and it was well deserved. VW has really stepped up the quality and competitive nature of their vehicles. MINI showed off the Mini-E, an all electric car that has a 150-mile range and can be recharged in less than two hours. GM showed off the Volt, a hugely expensive foray into green tech that will include a range of 40 miles before switching to fossil fuel consumption again. That’s a joke, right?

Even SMART was on cue – debuting a Brabus SMART 4for2. What a great idea! Last year, you’d get a Mercedes E55 and plonk some Brabus parts on it. This year, dump the Mercedes (unless it’s a BlueTEC model), and instead, hop around the city in your Brabus SMART – all for under $18,000. That’s smart, too.

As with many things, the poison originates at the head of the snake. For the auto industry, the over-consimption, over-production, over-greedy, and just plain fat, stupid mechanism that is the Detroit auto industry has fallen into a heap along with other greed-based markets. It was due to happen and many have called for this collapse for years. The question is, how is the market reacting? And, should the Detroit three be bailed out?

In our market research projects this year, we’ve learned quite a bit about the key generations purchasing vehicles – boomers, Gen X and Gen Y. As the buyers get younger, they get smarter about looking forward, too. I think it’s interesting that boomers totally miss the concept that because they lived their 20s a certain way means that Gen X or Gen Y kids did or do as well. That’s a key issue, no doubt.

What we saw in L.A. this past week suggests that many people are doing one of two things: waiting, or seeking real bargains. There are deep discounts on cars, if you pay cash or have 740+ FICO scores. Even an Audi Q7 can be had for as much as $15,000 off the retail price. That’s huge. Meanwhile, MINI isn’t disconting their cars, even $500 in many instances.

Cadillac continues to innovate, but is unique, even within GM.

Cadillac continues to innovate, but is unique, even within GM.

What should Detroit do? After watching, reading, and listening, my personal opinion is that they should just go away. That’s pretty harsh, and I certainly have no issue personally with anyone, but it would probably benefit the public and the industry in the long run if GM and Chrysler at least had a long dirt nap.

If, on the other hand, we’re looking at the U.S. economy, then perhaps they should be given a chance, but only if they take radical action. And, as with home sales, just putting a brand up for sale doesn’t mean it will sell. But, they should try.

Chrysler should become Dodge. There’s no public loyalty that I can see with the Chrysler name. Dump the main brand and re-organize around Dodge and Jeep. And study MINI as it relates to positioning Jeep for an appropriate audience. It can be done.

GM should hire a surgeon as CEO. Dump Saturn. It’s a rebranding nightmare. Never mind the “no hassle, no negotiating” style of marketing. Everything is on sale now. Who needs rebranded products these days? Very few people, and they’re mostly boomers or kids of boomers. Let Saturn go boom.

Next, kill GMC. Sell Saab. Who even knows that Saab is owned by GM? In fact, reduce the company to a core of Chevrolet, Cadillac, and Buick. Some might even argue to dump Buick, but I personally think it adds a niche for older buyers who value tradition. And, if positioned properly, it’s an upsell from Chevy.

Perhaps the most important lesson from all of this is that the market will, eventually, take care of itself. Buyers will ultimately rule the day, and that is good for business – as long as you know what business you’re in.