Let's make your car better.
Driving back from Louisville to Lexington in the rotten weather earlier today, I saw 15 vehicles which had spun off of the road. A couple of them had flipped over. 11 of the 15 were trucks or SUV's (and both of the flips were).
Too much confidence is a bad thing. Be careful out there, no matter what you drive.
[where: i-64, Frankfort, KY 40601]
As the Big 3 executives have returned to Washington asking for emergency funds with gestures that are both symbolic (driving in hybrids and taking $1 salaries) and substantive (slashing the numbers of dealers and brands), the question remains: Should we bail out (or invest in) the auto industry?
In my last Big 3 post, I said that I couldn't support a bailout. But that was before the execs got flamed for their corporate jets and came back to congress in hybrids with business plans… What do I think now?
I'm really disappointed.
While many of the figures in the business plans are truly staggering (GM plans to fire up to 35,000 employees), my reaction to the plans is this: Not enough. Not nearly enough. My criticism flows along three lines of thought:
The current proposals still smack of "life support" rather than a true plan for vibrant growth.
But rather than sit back and take easy potshots at the executives, I thought it might be more productive to outline what I had in mind. So (using my beloved GM as an example), here is my not-so-modest proposal:
Scale Back the Brands.
GM has proposed scaling back or selling their Hummer, Saab, Saturn and (maybe) Pontiac brands — leaving them with Chevrolet, Buick, GMC, and Cadillac. That is still 2 brands too many.
They should pour all mainstream car and truck efforts into the Chevy brand and clearly distinguish luxury vehicles with the Cadillac brand. Just drop the rest. To paraphrase John Moore, if Pontiac went out of business tomorrow, would any of us really care? Buick? GMC?
I can hear the objections: But Pontiac produces iconic performance vehicles like the Firebird and Grand Prix and GTO, right? Oh, they don't anymore? I think the nation will be OK without the G6 or the Torrent, as well-made as they might be… The Buick brand is surprisingly strong in China, but the appropriate Chevy or Cadillac models should be rebadged as appropriate for that market.
Concentrating on two brands would rid GM of the ridiculous 8x duplication they have today in product development and marketing.
(Ford should drop the Mercury brand, and Chrysler should just become "Dodge" and focus exclusively on trucks and minivans.)
Revamp the Dealer Model.
GM's dealer network is broken — too many dealers chasing too few car sales, and doing so in the wrong way. They've proposed cutting nearly a quarter of their dealers, but they should cut closer to half of them.
One way to speed the process? Get rid of dealers who won't accept the following: All dealers must accept a flat pricing model with no typical dealer shell games. By adopting the major innovation that Saturn offered to the market (and which GM is currently offering through their "Red Tag Event"), GM might be able to offer a competitive difference in the notoriously awful purchase experience. Doing so may draw buyers back to the showroom.
They'd also begin to align the dealer's interest with that of the customer. The dealers that still want to use smoke and mirrors to drive their profit? Get rid of 'em.
Moonshot.
Establish a semi-public National Automotive Technology Institute (or some such entity) with the explicit objective of crafting an inspirational next generation of smarter, more desirable, more fuel-efficient vehicles within the next 3 years.
Force the Big 3 to contribute their energy and talent to the venture. Connect the Institute to the best private- and public-sector initiatives on energy, artificial intelligence, and vehicle design.
Motivate the best and the brightest individuals to develop a true national energy program in which we 1) drastically curtail petroleum use, and thereby 2) stop funding despotic regimes who dislike (or terrorize) America the most: Russia, Venezuela, Iran, and Saudi Arabia.
How to fund this? Any dollars used to fund continuing operations at the Big 3 must be matched dollar-for-dollar with funds for the Institute.
Scale Down Retirees.
The one problem that there is no real solution for is the retiree obligations. Both the UAW and Big 3 management colluded for years to create monstrous future pension and health obligations for retirees that both sides knew was untenable.
They are both to blame. So they both must pay.
First, the retirees must accept significant reduction in their benefits. As painful as that might be, it is better than the alternative of no benefits if the Big 3 go belly up.
Second, the company must meet what remains of its obligations to the retirees. But everyone knows that they can't afford even a reduced set of obligations. So, in exchange for a federalization of the retirement programs (as well as in exchange for a cash infusion), the companies must give up a significant chunk of their equity to taxpayers, to ensure that they are an ongoing concern.
As long as they abide by the other elements of this not-so-modest proposal, a public investment in the Big 3 should turn profitable within the decade as Americans (and the rest of the world) come back to attractive, affordable, and fuel-efficient American cars.
Have I been over the top? Perhaps… But really saving the auto industry will not be accomplished through bland half-measures.
[where: Washington, DC]
As I see the world through my 2-year-old son's eyes, I'm constantly reminded of the everyday wonders we sometimes take for granted as adults. I've always liked Einstein's "two ways" quote, and have tried to maintain a child-like amazement at what I encounter in life.
Jaded people (the "nothing is a miracle" people), frankly, bore me to tears. It is far too easy – and lazy – to pretend that you've been there and done that, and that there is nothing new or wonderful in the world. Ultimately, that cynical attitude stunts one's ability to grow, learn, and change. It isolates jaded people from others.
I was talking (debating, really) with a group of business leaders the other day, and it struck me that there is a nearly identical "two way" attitude division in the business world.
The Lazy Way
Some companies approach their business with a cold, calculating, flinty-eyed precision. These companies look at business as a pure numbers game. They often see their customers, suppliers, and employees as opponents or obstacles or dupes to be taken advantage of in their pursuit of the almighty dollar.
They see every relationship as an opportunity to "take" — in fact, "relationship" is seen as a soft, weak, and silly notion which has no place in business. This is the case among executives at my last company.
In their lazy reliance on numbers, such miserly companies manage for the short term, the "quick fix" — "Let's make a mint before the customer (or employee or supplier) gets wise to us!" Eventually, these companies get so disconnected from customers and employees that the dominant day-to-day focus of the organization is on internal politics and positioning.
From my experience, I can tell you that such shrinking companies are miserable places to work, and they ultimately suffer long, slow, painful deaths as customers and employees flee in droves.
The Generous Way
Other companies adopt a fundamentally different philosophy and approach to their business. They approach business with a spirit of generosity. They see that building long-term relationships with customers, employees, and community creates both financial and human rewards. While the numbers might inform their choices, these companies make decisions based on doing the right thing.
"Doing the right thing" shifts the focus from the financial numbers to the human equation. Doing the right thing isn't easy. It can be hard work. It isn't always profitable. "Right thing" companies usually grow more slowly than "quick fix" companies (at first). But they do continue to grow when quick fix companies fade (or implode). They build lasting relationships which sustain them through good times and bad.
The "right thing" companies still pursue profit, but their primary focus is outward: on generous relationships with their customers, their employees, and their communities. They trust that the profit will follow.
These growing, vibrant, connected companies are engaging and rewarding places to work (and to do business with), and they have long-term employees and customers.
Everything is a Miracle
As the economy weakens, many companies have scrambled back to the quick fix of analyzing cold, hard numbers (and charts and plans) and have abandoned their "soft and fuzzy" relationships with people. The numbers make them feel safe and precise and comfortable. But they aren't any of those things…
They might not know it yet, but they are the walking dead.
The companies who will ultimately thrive in this economy (and who will drive real economic growth) are the ones who continue to connect with their customers, employees, and communities — and who continue to do the right things.
But Albert Einstein could have told you that. My 2-year-old could have told you that. It is just that simple.
U.S. auto sales drove off of a cliff in November.
The numbers from Autodata show that the industry as a whole is down almost 37% from last November, and GM and Chrysler are especially hurting, with sales down 41% and 47%, respectively. Toyota fared better than the industry average, but still lost a third of its sales from last year.
Industry sales have been down all year, but the November numbers were especially shocking.
In this post, we'll look deeper into the numbers to see what they say about the industry and what they say about the market.
Cars and Trucks
One of the things that jumps out about the sales figures is just how dependent the Big 3 are on truck
sales. Combined, the Detroit automakers derive two-thirds of their sales from light trucks. Chrysler sells three times as many trucks as it does cars.
Toyota, Honda, and Nissan get most of their sales from cars. In fact, I was surprised to see that the "Japan 3" sell more cars in the U.S. than the Detroit 3. Toyota has the largest share (21%) of cars in the U.S. market.
So when gas prices topped $4 per gallon earlier this year, the sales of gas-guzzling trucks fell off dramatically. Because of their dependence on trucks, Detroit suffered far more than the Japanese and European automakers.
Essentially, customers shifted their purchase patterns to cars when gasoline prices became a burden, and that helped Japan at the expense of Detroit.
November was different
But what happened in November was fundamentally different from what happened earlier in 2008. In November, car sales and truck sales both declined at about the same rate. The truck / car differences we described above disappeared (along with $4 gas). In November, all of the automakers were hit pretty hard.
So what is going on?
November is different because customers stopped buying vehicles, regardless of whether they were a truck or a car.
In most of 2008 vehicle purchasing decisions were affected by fuel economy — and the market shifted to buying cars from buying trucks. In October and November, purchasing decisions were affected by the overall economy — and vehicle buyers disappeared.
All of this has amounted to a fatal one-two punch for Detroit. Wobbled by disappearing truck sales when gas prices were high, the knockout punch for the Big 3 came when the overall market dried up. While the economic downturn has hit all of the automakers, Detroit has crumpled under the weight of its legacy burdens.
As the Big 3 executives go back to Washington (this time driving hybrids instead of riding in company jets) to ask for emergency funds, I'm still wondering: What will change?
A couple of blocks down Limestone from Lowell's — across from the new courthouse — is Giacomo's New York Deli, home to some of the biggest, tastiest sandwiches in Lexington. They import their generous portions of corned beef and pastrami from the Carnegie Deli in New York City, and all of their ingredients are tasty and abundant.
If you get to Lowell's early, you can try out breakfast at Giacomo's. I like the Hit 'N Run (English muffin, egg, and sausage or ham) — served with Giacomo's trademark heaping helping of ingredients.
For lunch, try any of their huge sandwiches. I recommend the Grand Cran (turkey, stuffing, and cranberry
sauce) — it's like Thanksgiving on a bun. Be sure to get a Vernor's or Doc Brown's soda to drink with your sandwich, too (Vernor's is my favorite "ginger soda", which originated in Detroit after the Civil War. Good stuff.)
[where: 133 N Limestone, Lexington, KY 40601]
When Suzanne and I bought Lowell's back in July, a lot of our friends and family wondered why the business focused exclusively on Toyota brands (Toyota, Lexus, and Scion). There are historical reasons, but there are also significant benefits to our customers.
At first, specializing in one brand seems like a very limiting choice, since only a fraction of the cars on the road are Toyotas. Why not serve the whole market?
There are three basic reasons we specialize:
Finally, this combination of better, faster, and more affordable reinforces itself: When we have deeper expertise, we provide superior service faster, which helps us keep costs (ours and yours) lower.
[where: 111 Mechanic St, Lexington, KY 40507]
Don't get into trouble this holiday season — be sure to have your guests sign this before the festivities start.
Occasionally, we'll come across a fan of Lowell's in the most unusual places. We found a really great endorsement from a former customer in Orlando on this forum. Here is an excerpt:
Twenty percent as good? Maybe it is time to open a Florida branch of Lowell's. (Yes, I'm kidding. We're happy right where we are.)
[where: Orlando, FL]
We'll be open the day after Thanksgiving ("Black Friday"). Bring your vehicle into Lowell's, and you can
shop and eat nearby. Or, let us take you to the store with our complimentary shuttle service.
[where: 111 Mechanic St, Lexington, KY 40507]
No matter how far you've gone down the wrong road, turn back. (Turkish Proverb)
In my last post, I chronicled what I think has caused the collapse of the American auto industry: heavy retiree costs; poor timing; and the current economic slump.
As auto executives went to Capitol Hill with hat in hand (after stepping off of their private jets), the question of the day is: Should we bail out the auto industry? I'll outline my thoughts on that issue here, and would be interested in what you think.
I feel that I pay taxes to contribute to the general well-being of the community, state, and nation (which, ultimately, will pay me back). My hope is that those tax dollars are allocated to the beneficial initiatives that one person or business cannot afford alone: things like roads and infrastructure, national defense, police and fire protection, and the like.
I also hope that some dollars are dedicated to the cooperative "moonshot" projects that make our country, community, and industry great. These include things as grand as the Marshall Plan to rebuild Europe after World War II or actually going to the moon in the Apollo missions, as well as more pedestrian initiatives like DARPA (the defense research agency which spawned the internet and many other technology advancements) and SEMATECH (the government-sponsored semiconductor industry consortium which helped build huge international advantage for companies like Intel and AMD).
So is bailing out the auto industry (and its suppliers and all of their employees) worthy of such "moonshot" status? I think that it is… IF… It is in the national interest to preserve the domestic automakers. The ripple-effects of the collapse of these companies, the loss of so many jobs, and the subsequent social and economic ramifications could push the overall economy into a state of depression.
But….
While I think that preserving the American auto industry is a potentially noble pursuit (worthy of my tax dollars) and I think that it could contribute to the well-being of my country and community, I haven't heard a plan to preserve the industry.
I don't think a bailout is warranted until 3 basic questions are answered:
A bailout will fail if all it does is prop up an already-failing industry. Until the companies and the congress talk about permanently and productively changing the way the industry operates, a bailout just staves off the inevitable.
Detroit has been on the wrong road for 35 years or more, and they're running out of fuel. We shouldn't give them more gas until they change where they're headed…
[where: Detroit, MI]
