By: Leroy A. Binns Ph.D.
As consumer confidence continued on a downward trajectory on
the subject of the acquisition of US automobiles the conversation became the
butt of all jokes on late night shows to unfavorable daily comments by opinioned
and educated critics.
The loss - a huge market share or a burial of sorts is
rightly so as the Big 3 failed to lived up to expectations. It was assumed that
until the late 70s Detroit presided over the automobile industry with contempt
for competition and therefore despite the gasoline crisis in 1973 lacked the
inclination that the market was ripe for transition so much so that the arrival
of Japanese products were overlooked as unfitting for American society.
Consequently the old corporate mentality persisted with a philosophy geared
towards big gas guzzlers that were oftentimes defectively manufactured with
inferior material and mechanically problematic.
A costly and voluntary capitulation to the Asian newcomers
most notably Toyota and Honda was primarily at the expense of American
consumers who required economical commodities and voiced the following
disheartening perspectives pertinent to the local contenders.
Arrogance – Unlike Japan where expensive restrictions abound
to the sales of foreign vehicles Washington endorsed an open policy to the US
market. Such unwillingness to resist legislation to protect domestic products
worked to Japan’s advantage.
Ill fated Labor Policies – Profits are limited by lofty
pension and healthcare plans for thousand of retirees and current employees
which encourage the closure of local plants and their replacements overseas.
Design Paralysis – For many years all 3 have charted a
course of continuity void of acceptable changes in design. In some instances
vehicles on similar platforms carried very few cosmetic changes (e.g., Ford
Taurus and Mercury Sable) to distinguish them one from another. Besides a few
retro products of which the Chevy Camaro and the Dodge Challenger are examples
of a touch down, the companies are struggling to maintain a presence.
Product Planning Deficit – Such relates to miscalculated
timing and lengthy periods for the introductions of new models, an over supply
of vehicles that affects the resale value of the units and impracticality with
regards to efficiency.
Up until the mid 2000s all 3 remained on the side line with
the foreign competitors eroding their market share below 50% particularly due
to a welcoming response to fuel efficient and environmentally friendly vehicles.
By 2005 the entrenched courtship with Asian products dealt a severe blow to the
domestic adversaries General Motors loss $10.6 billion whereas Ford two years
later placed the icing on the cake with the record for a $12.7 billion
liability despite added resources it acquired for cash flow operations in
exchange for corporate assets as collateral. Such signaled a cause for
reflection on Ford’s viability in an ever changing and crowded market.
According to numerous professional assessments the gap
between Japanese and American automakers is elevated by labor cost which in
turn affects profit margins. In 2007 GM spent $1,635 per vehicle on healthcare
for active and retired workers whereas Toyota
Moreover work rules, line relief and holiday pay to the tune
of $630 per vehicle are additional workforce expenses encountered by the
Detroit giants but not by Toyota. Obstacles also include closure cost estimated
at $350 per vehicle or excess production as illustrated by Chrysler in 2007 valued
at $3,000 to $5,000 per automobile if purchased by rentals or $1,250 per unit
as an incentive to entice dealers into accepting extra vehicles. It even gets
worse by adding poor quality and uncreative marketing valued at $1,000 per
vehicle along with an exchange rates that in 2005 gave leverage to the Japanese
with a cheaper yen. All said Japanese automakers report revenues estimated at
$2,692 or more per unit in comparison to local counterparts.
Aside from the Big 3’s self inflicted damage the Japanese
auto giant that by 2007 surpassed Ford and Chrysler and in 2009 GM in global
sales has built quality products to match demand (e.g., Toyota Camry has been one
of Car & Driver’s best ten cars for 10 consecutive years) and as outlined
in his book “Keeping Up in a Down Economy,” Bob Nelson highlights an inclusive
work environment that encourages input – on average 1.1 by an American worker
per year to 167 per year by a Japanese equivalent. As intended, Toyota buttressed
its statute as a legitimate competitor within both car and light truck segments
with an overall 12% sales increase in 2006 and over $11 billion in profit a
year later. Overtures have even included local production (the manufacturing of
the Camry in Kentucky) and joint ventures with GM with the production of the
Chevy Nova and Pontiac Vibe, philanthropic adventures with National Center for
Family Literacy and a stake in technology beneficial to unrelated entities such
as Viking Range Corp, Boeing Corp and healthcare facilities.
A series of unfortunate and unrelated circumstances have
nonetheless disrupted this lifelong marriage of convenience. As early as late
2009 to early 2010 two unassociated recalls – pedal and mat entanglement and a
third – anti-lock brake software problems affecting the Toyota Prius caught the
attention of the National Highway Traffic Safety Administration (NHTSA) and led
to a massive recall of 5.2 million cars for pedal/mat related issues and an
additional 2.3 million for accelerator pedal associated problems. Vehicles were
also recalled in Europe and China resulting in a total of 9 million units under
such scrutiny over a short period of time and in light of this investigation, a
decrease in sales of affected models awaiting parts.
While in the end the National Aeronautics Space
Administration (NASA) and NHTSA vindicated Toyota of irresponsible conduct repeat
dealer visits and law suits tarnished a once impeccable image. Some onlookers fault
the company for ignoring comparable complaints dating back to 2000 as the
Japanese giant like British Petroleum sought refuge in denial and only surfaced
when all else failed to introduce damage control. Once exposed Toyota’s
embattled president Akio Toyoda unveiled a commitment to launch a blue ribbon
safety advisory committee, initiate a top to bottom review of our global
operations and establish an automotive center of quality and excellence in the
United States. He also accepted full responsibility and apologized for product
errors and misgivings within the organization.
With the crisis over but not forgotten the world’s largest
automaker now subject to a protracted recession and an revived US auto industry
sold just over 100,000 vehicles in the US in February 2010, 8.7% less then the
corresponding period one year earlier in comparison to 12% by Honda and 11% by
Hyundai. It has since fought to “drum up” support by introducing incentives
such as 0% financing for 60 months on popular models such as the Avalon, Camry,
Corolla, Highlander, Matrix, RAV4, Tundra and Yaris but has met with stiff
competition by GM and Chrysler that matched the offer with goodies as well.
The organization is likewise trapped with the effects of
natural disasters. A devastating tsunami that hit Japan in March is accountable
for the closure of four plants, the Toyota Motor Hokkaido, Toyota Motor Tohoku,
Central Motor Corporation Miyagi (that produces the Yaris) and Kanto Auto Works
Iwate (which builds the Scion xB and Scion xD). In spite intentions to restart
production at two industrial centers critical for the output of three hybrid
models almost two thirds of the suppliers from northeastern Japan are not
functional thus restricting the vehicle availability and sales. Such in part
contributed to the relinquishing of the title of the world’s number one
automaker to its previous recipient GM that sold over 9 million vehicles in
2011 and could reduce growth estimates for Toyota’s international vehicle
market share by 20% through to 2013.
Adding to the disturbing experience is Thailand’s worst
nightmare in over 50 years – a flood which has halted the supply chain for car
components thus affecting the production of 6,000 Japanese cars per day. The
crisis is accompanied as well by a strong yen, high corporate taxes and slow
progress on trade agreements needed to boost the industry.
To its credit the Big 3 with the mortgaging of assets in the
case of Ford and a government bailout to the tune of $24.9 billion allocated
between GM and Chrysler seized the opportunity to reposition themselves within
the marketplace via a reduction in models (Chrysler Aspen, PT Cruiser,
Crossfire, Pacifica and Dodge Magnum) and brands (GM’s Saturn, Pontiac, Hummer
and Saab), plants and employees and other union concessions. As recent as 2008 both
Ford and GM have proven their ability to compete within the global market but
following unacceptable entries namely imports such as Ford Capri, Merkur
Scorpio and Merkur XR4ti (Germany), GM’s Cadillac Caterra (Germany) and Pontiac
GTO (Australia) and Chrysler’s Maserati (Italy) were ineffective in recapturing
the heart and soul of America. The New York Times notes the Opel Insignia a mid
size car built by Opel and Vauxall both European divisions of GM and crowned
the 2009 European car of the year possessed driving capabilities second only to
the Ford Mondeo. In addition the Ford Fiesta a subcompact and runner up car of
the year is considered equal in fit and finish to its chief Japanese
competitors Toyota and Honda.
Locally the tide is shifting as the GM N cars such as the
Chevy Malibu is highly ranked on the midsized car list with the Saturn Aura is
poised for similar attention. In fact GM is so confident in its midsize
offering that it provided customers an opportunity to compare and contrast by
driving a Honda Accord and/or a Toyota Camry alongside the now defunct Pontiac
G6 and the Saturn Aura at their respective showrooms.
With progress in quality, options and styling the Detroit
2009 Quality Rankings (for first 90 days)
Brands No
of problems per 100 vehicles
Lexus 84
Porche 90
Cadillac 91
Hyundai 95
Honda 99
Mercedes Benz 101
Ford 102
Chevrolet 103
Suzuki 103
Infiniti 106
Mercury 106
Industry average 108
Source: JD Power and Associates
In relation to the industry’s average of 8% on surveys
related to mechanical and design issues the Big 3 improved by an average of 10%
in 2009. Further in juxtaposition to the foreign rivals it is the opinion of
Dave Sargent vice president of automobile research at JD Power and Associates
that the quality of cars in question are a close match to that of foreign
rivals and is projecting improvement when considering the pending release of
new products such as the Chevy Cruse and Spark and Ford Focus.
With positive professional assessment comes consumer
confidence. RL Polk & Co tests the pulse of the market and expressed ambivalence.
Negatives
64% surveyed stated they were likely to keep their vehicles
longer than normal.
77% polled said they were likely to purchase used vehicle as
replacements.
47% think economic situation will continue to deteriorate
whereas 52% are pessimistic about positive fiscal change within their families
in the next 12 months.
Positives
72% say they would consider purchasing an American
automobile.
55% of the 1,361 consumers plan to buy their next vehicles
within two year.
In the words of Lonnie Miller Polk’s director of industry
analysis, “With all the doom and gloom in the US
Toyota’s attempts at jump starting its operations has led to
generous incitements but she was the only company that sold less cars and
trucks in 2009 partly due to obstacles importing the hybrid Prius and
production issues that reduced the output of Tundras and Tacomas built at a San
Antonio plant. The fluctuating price of petrol could be a determining factor in
purchasing choices and could ultimately affect a rebound for an already
struggling company.
Sales of Ford, General Motors and Chrysler products rose 11%
by August 2010 in comparison to 8% for the overall market affording them market
share and profitability for the first time in years.
Market Share (by %)
GM 19.4 18.8 19.7 22.1
Ford 16.5 16.4 15.3 14.2
Toyota 12.6 15.2 17.0 16.7
Chrysler 10.5 9.2 8.8 10.8
Honda 9.7 10.6 11.1 10.8
Source: Automakers
GM also gained accolades for being rewarded the 2010 North
American Car of the Year with its release of the Chevy Volt while the European
styled Ford Fusion known as the Falcon in Australia with its Ford Sync
multimedia system has earned a spot in the sunlight.
In sum an industry worth an all high of 17.4 million cars in
2005, 11.6 million in 2010 and projected at 12.5 million to 13 million in 2011
is years away from full recovery. While predictions are favorable Toyota Detroit
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