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- RANTS #465
October 1, 2008
A Doomsday scenario unfolds for Detroit.
By Peter M. De Lorenzo
Detroit. First it was the mortgage loan meltdown, followed by the gasoline price spike last spring. The collapse of the casual use light truck and SUV market - almost the entire source of Detroit ’s profitability - came immediately afterwards. Then it was the perilous slowdown of the economy, resulting in the precipitous drop in car and truck sales. Add in the turmoil on Wall Street and the teetering banking crisis, and you have the ugly icing on an already bitter cake.
Now, in the midst of the nation’s banking crisis, the credit crisis – or lack of it – threatens to derail Detroit ’s best-laid plans for its very survival.
It is one thing for these companies to muster the expertise, the technical resources and the strategic imperative to reposition themselves for a resurgence in 2010, because their backs are to the wall and it’s a relentless, 24/7 siege to keep on track and keep focused on where they want to be, as opposed to where they are now.
It’s quite another to have the very lifeblood of their business – available credit – be yanked out right from under them, leaving them with painfully few options going forward.
The $25 billion in government loans at a favorable interest rate is one component of Detroit ’s lifeline that will be spent on new technologies and the development of more fuel-efficient vehicles for 2010. That’s a given. One that comes with strings but one that was sorely needed in order for Detroit to fuel its future product programs.
But if consumers can’t get credit to buy vehicles right now, or if it becomes extremely difficult to get credit even if a consumer’s credit rating is outstanding, then we’re talking about the collapse of the entire domestic automobile industry as we know it. Not just another negative step in a long line of negative steps for Detroit, but an imminent and outright collapse.
A lineup of glittering new products - no matter how technologically advanced or wildly efficient they are - counts for exactly nothing if consumers can’t afford them. And this isn’t just Detroit ’s problem, either. All car manufacturers will be in the same boat unless this credit situation is solved – and soon.
But the Detroit automakers are already under severe pressure because their cash position is beyond precarious to begin with. When you’re burning through $1 - $2 billion a month, it starts to add up, which is why the Detroit automakers are hanging by a thread. The best guesstimates for GM and Ford is that the end game is only eighteen short months away, if the “burn” rate continues at the breakneck pace it’s going now, and there’s no dramatic turnaround in their fortunes. Chrysler? They will partner with another company in that time frame, no matter what happens.
Losing access to credit is a Doomsday scenario that no one in Detroit – or the rest of the country for that matter – is prepared for. How could anyone be prepared for such a cataclysmic upheaval in the way America runs?
It’s easy for some to say that maybe this is the best thing that could happen, that the country needed a major correction in its credit addiction so that we could get back on track, but as good as that may sound theoretically, it spells disaster in a kaleidoscope of ways – for every sector of the economy – and particularly for the domestic automobile business.
The U.S. auto industry is teetering on the brink and has been for months. It has been one thing after another followed by another for Detroit, and each new turn of the screw redefines bad as we know it.
And just how much worse can it get?
Not much, because Detroit ’s giant bowl of Not Good is already filled to the brim.
With the domestic automakers planning on launching a brace of pivotal new vehicles for the 2010 model year, there is at least a shred of hope that two of the automakers can survive. New products, new technologies and compelling new fuel-efficient vehicles are on the way. But talking about all the great stuff coming in 2010 and surviving until then are two entirely different things.
Unless and until cooler heads prevail in Washington - which apparently is asking a lot - and the political grandstanding can be set aside for a day, then Detroit simply doesn’t have until 2010.
If people can’t get loans to buy cars or trucks, then it’s Game Over for Detroit.
Thanks for listening, see you next Wednesday.
- RANTS #464
September 24, 2008
An automotive rarity.
By Peter M. De Lorenzo
Detroit. Almost three years ago now, at the Detroit Auto Show in January, 2006, I wondered out loud about the direction that BMW was going. What I observed back then was a burgeoning portfolio of vehicles littering the show floor, a clear indication that BMW was slipping into that dreaded pursuit of being all things to all people, the same tack that had nearly ruined the Mercedes-Benz brand image in this country (and which still haunts the brand to this day).
There were so many BMW models on display - and iterations of models – that I actually lost count. This was BMW? This massive display was supposed to impart a good feeling about the direction of the brand? It had the direct opposite effect, as a matter of fact, and it was unsettling.
But that wasn’t all, because it wasn’t just on the auto show floor that BMW’s strategy was becoming glaringly apparent. BMW marketing had embarked on an aggressive, sales-at-all-costs mentality, with the idea of a BMW being in “every garage in America” seemingly the thinly-disguised goal. End of year sales “events,” massive incentive marketing gambits, and every sales trick in the book were used by BMW marketers to push the brand on the American consumer public. And because of that BMWs were becoming as ubiquitous in some parts of the country as Camrys - and it was a giant bowl of Not Good, especially for an automaker that built its reputation on the inherent goodness of a boxy little sport sedan that was a blast to drive, the now legendary 2002.
Back at that auto show I got the distinct impression that BMW as a company had taken an alarming turn, that somewhere in the din of Toyota-like “sell-a-thons” and incentive-ized leases, the company had lost a big chunk of its soul along the way.
And it just wasn’t supposed to be that way.
BMWs were never about being all things to all people. If you drove one of those original 2002s back then you marched to a decidedly different drummer and when you think about it – what with the 2002 being introduced to this country at the very end of the muscle car era – you couldn’t have driven a more different vehicle if you tried. But not surprisingly driving enthusiasts flocked to them, and the BMW “thing” grew exponentially over the years.
But where BMW grew to was another thing altogether. The brand was in danger of losing its connection to whatever it was that was magic about the 2002 to begin with, and not only that, it was veering dangerously close to becoming just another car company.
And though BMW still builds some superb cars - we consider the 3 Series to be the best all-around car in the world – it’s clear that the Toyota sales mentality had infected the brand to its core in the U.S. Too much emphasis on volume for volume’s sake, too much dwelling on covering every possible niche that the company could think of, and precious little time being spent on what got BMW to where it was in the first place had taken a significant toll.
But BMW’s modern day habit of chasing every possible niche in the automotive spectrum looks to be coming to an end. It was refreshing to read an interview with Jim O’Donnell – the CEO of BMW in the U.S. since last spring - in this week’s Automotive News whereupon he went on record as saying that he was going to completely rethink BMW’s marketing strategy here in the U.S.
Besides slashing costs (and 90 jobs in North America), O’Donnell has made a conscious decision to actually reduce BMW’s footprint here in the U.S., cutting its allocation by 44,000 units. It’s one thing to be forced to take that kind of action due to the economy, it’s quite another to make that kind of choice on your own. As a matter of fact it’s simply unheard of in this day and age. O’Donnell is also going to reduce spending on incentive marketing and end the now traditional BMW blow-out sales event in December - hallefrickinluja. He also plans on cutting lease volume by 10 percent here in the U.S.
And in what should be of particular interest to the hard core BMW faithful, O’Donnell is proposing the reintroduction of four-cylinder engines here which, if placed in the 1 Series, would in fact be the second coming of the 2002.
Auto execs like Jim O’Donnell don’t come along every day. It’s nice, of course, to have the luxury of being in charge of a brand like BMW, one with such residual goodness and reputation – despite the bone-headed marketing screw-ups – that you’d have to be an absolute idiot to run the thing