Auto Brands: Ignore The Future, Become The Past

What will consumers do in the future? This question leaves marketers dolefully scratching their heads. The combination of market complexity and a huge number of potential economic and cultural outcomes can produce an enormous array of market permutations.

Despite this, predicting future consumer behavior – or at the very least hedging your bets against potential outcomes – has never been more important. Take the big three US automotive manufacturers: Ford, General Motors and Chrysler. Each is, to use a technical marketing term, absolutely screwed. This is not because they could not see the future, but because each chose to ignore the big bend in the road ahead.

Ford won plaudits last week for chief executive Alan Mulally’s rescue plan, under which truck plants in North America are to be re-equipped to produce more fuel-efficient European models such as the Fiesta, and greater numbers of Ford’s hybrid cars.

Ford does not want you to remember that in 2000 it committed to reducing the fuel consumption of its cars by 25% and selling 250,000 hybrid cars by 2010, before getting cold feet and opting for business as usual.

The lag between the two commitments could prove problematic. At present rates, I would estimate that Ford will run out of cash in 2011, and there is no guarantee that its new output will prove popular when it goes on sale in the US in 2010.

However, Ford staff can at least be glad that they don’t work for Chrysler.

All but two of its models generate about 30 mpg, it is owned by private equity, sales are down 22% this year, and it is currently trying to renew a $30bn credit line with banks after a crash in the value of leased vehicles.

In January 2007, as Chrysler’s then chief economist, Van Jolissaint, presented its annual plan, he accused Europe of a ‘Chicken Little’ overreaction to climate change. Chrysler, he said, would deal with the matter in a ‘step-by-step, rational manner’. Jolissaint has since retired, and some analysts question whether Chrysler will survive its current crisis.

Then there is GM. Its stock has plunged 90% this decade and its market capitalization is now $6.7bn, only three times that of the UK’s Daily Mail and General Trust. It has put its faith in the Chevy Volt, which is due to go into production in 2010.

GM would prefer not to discuss its original hybrid car, the EV1, which was launched in 1996 and withdrawn in 2003, after low sales led to it being pronounced unprofitable by GM executives. This decision was made despite the fact that GM usually loses between $1000 and $2000 (£500-£1000) per car.

It is not just that the big three ignored the future. From where I stand, they also seem to have attempted to hold the US government back from doing anything about it. All three have spent millions lobbying to delay laws that would have made improvements in the fuel efficiency of new cars mandatory. While global competitors Toyota and VW responded to market needs by introducing smaller, lower-emission models, the big three seem to have preferred to spend their time and money preventing the government from forcing them to do the same.

At some point in the future, quite possibly this year, I predict that one of the big three will fall. The sad, stark reality is that all three companies are victims of market changes that they could, and should, have responded to many years ago.

30 SECONDS ON … CAR FIRMS’ LOBBYING IN THE US

– The US car industry collectively spent more than $70m (£35m) on lobbying the country’s government in 2007, according to research group the Center for Responsive Politics.

– In 2006, the state of California, governed by former actor Arnold Schwarzenegger, filed a suit against six car makers, including General Motors (GM), Ford and Chrysler, for compensation relating to harmful emissions.

– The state later shifted its legal attentions to Washington, and this year agreed to meet the Alliance of Automobile Manufacturers to discuss its attempts to enforce stricter emissions laws.

– One of the most contentious issues has been the call from environmentalists for the US’ fuel-efficiency standard to be raised from 27mpg to 40 mpg. GM, Ford and Chrysler claim this would force them to produce smaller, less profitable cars.

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