Automakers Set Battle Plans (3/20/2003)
Automakers weigh options as war and weakened economy close in.
“These are time times that try men’s souls. The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands it now, deserves the love and thanks of man and woman.” — from The Crisis, by Thomas Paine
I am sure many of you remember those words from your school days. They were written in the dark days of Valley Forge. Our crisis isn’t as terrible but still, as I write this, our army is on the march.
I don’t know what will happen. Our enemy, Saddam Hussein, may be overthrown or he may flee. But the waiting that held our collective breaths until now has produced a kind of crisis in our country. The nation is divided, the economy struggles, the stock market falls, gasoline prices climb.
No, it isn’t Valley Forge, nothing like it. But it is a crisis and important to us all.
Autos in crisis
The auto industry, too, is approaching crisis.
Sales are falling. I don’t know how far or how long the decline will last. No one does. Drops of 20 or 40 percent are not unknown. I recall that sales had been running above 15 million a year before the last Gulf War, and then in 1991 slumped to 12.5 million. That kind of 20-percent slump would be terrible. I can go back to 1958, a deep recession year, when car sales fell to less than five million from the record seven million of 1955.
So this sales decline could be bad and could last a couple years after we march into Baghdad. Or sales could recover quickly as the price of regular drops to $1.25 a gallon. No one knows. About the only thing the companies can do to prepare for bad days is to run a tight ship. But beyond the broad economic question, each company faces its own crisis.
The crisis at Chrysler
The company is creating a new car strategy. The large front-wheel-drive sedans, like the Dodge Intrepid and Chrysler 300M, will be abandoned. A new series of rear-wheel-drive cars, the LX models, using some Mercedes parts and even a V-8 engine, will go into production next year. The strategy is drive the new Chrysler and Dodge models upscale. Higher style,
higher quality, higher price. They will be more expensive to build (Mercedes parts cost more than Dodge parts, and Hemi V-8s are expensive). The smaller Chrysler cars will stay front-wheel drive but shift to a Mitsubishi-based platform and thus be greatly changed. Those are the Neon and Status and Sebring models.
This is a daring program. If the two–pronged attack works, Chrysler has jumped ahead of the competition and has an enormous marketplace success.
But it’s a great risk, too. If it fails, if people don’t like the more expensive RWD cars and the Mitsubishi-based small ones, then Chrysler is just out of the car business.
There is no fallback, no wait until next year. Their car dreams are crushed. Great rewards, but great risks.
Ford at risk
Ford faces a crisis, too. We seem to hear about it all the time. The product is getting old and we don’t know if the new leaders are up to the job of inspiring and leading a recovery. They continually tell us that the key to recovery is the new big pickup truck, but that it will cost $2000 more to build than the old one.
Worse, the performance record: Getting the product out on time without terrible quality glitches, isn’t good.
The $2,000 extra cost doesn’t bother me. To me the question is how good is the truck? If it is good and sells, that’s enough. I happen to believe in that old Detroit saying, “We lose money on every one but we make it up in volume.” If Ford sells a million F-Series vehicles, it will find a way to make money on them.
But the company still seems terribly slow in getting new stuff out. For example, where is the Ford Hummer? I recall a show car they had a few years back, the Equator it was called, a terrific Hummer-type design. I saw it at the Detroit auto show and it vanished.
The stock is down to six or seven dollars a share as I write this. That is a crisis price.
Then there is General Motors. No big visible crises like Chrysler or Ford, but smaller ones. Example: Those foreign affairs, like Fiat and Saab, sticky business and costly.
More difficult: the General Motors strategy of huge price cuts on its vehicles (those rebates) has worked in keeping its factories running. But in a serious sales slump that might not work. Would plant closings create more threats because of potential increases in the costs of layoff pay or pensions? I don’t know but I know GM wants to avoid it.
These are serious issues in the country and the industry. They don’t rate with those days at Valley Forge but they are serious enough.
We have our crises coming. Let’s hope we have the courage and wisdom of our ancestors.