The End of the World
Detroit automakers’ worst nightmares are rapidly becoming their new reality. Even long-time allies of Detroit believe that corporate average fuel economy standards (CAFE) for light vehicles are likely to be raised. To add insult to injury, Toyota has passed GM and is now the world’s number one automaker (based on Q1 unit sales).
The end of the world is here. Now what?
Ford and GM are following very different paths. Ford CEO Alan Mulally this week said he realizes that global warming is real and that cars and trucks have contributed to it, and now he wants Ford to be the world’s greenest automaker. To ensure that his words were not simply platitudes, he appointed one of Ford’s best and brightest, Sue Cischke, to report directly to him and to develop a long range sustainability strategy for Ford.
GM has sent Vice Chairman Bob Lutz as a one-man troop surge.
Lutz says that raising fuel economy won’t cut oil consumption and that it would cost automakers too much to make the investments needed. However, over the last two decades the domestic automakers have invested billions in improving their engines. Had the automakers used these technological improvements for fuel economy, then today’s cars would average 38 miles per gallon-10 miles per gallon over CAFE. Instead they were used to increase the weight and speed of vehicles, and fuel economy barely budged. He who says there is no way to improve fuel economy beyond status quo must also say that no more improvements of any kind-for more speed, power or a bigger cargo capacity-can be made. GM’s technology investments prove that they do not believe no more progress can be made.
Lutz says, "We engineer and build cars for the real world and real customers." Detroit’s ever larger and more powerful cars and trucks are, according to Lutz, just what the customers wanted. How well does Detroit understand the wants and needs of real customers? Let’s look at the recent record. After spending billions to engineer and build a slew of new products for real customers and millions more for marketing and brand management, the only marketing tool Detroit has that seems to get real customers interested in their products is lower "price, price, price."
How is it possible to spend millions on market research and yet be so dependent on price and incentives to sell? Easy, assume that you already know what customers want and "adjust" or ignore market research if it disagrees with your assumptions. When the automakers say, "consumers say one thing and do another about fuel economy," they are really confessing to market research abuse. And then, when products engineered and built to meet these incorrect assumptions about what real consumers want are finally sold, it is at fire sale prices — far lower than had the assumptions been accurate.
The end of the world, as Detroit knew it, is here. The choice the automakers face is as basic as it gets: Either accept the new world and find your new place in it or deny that the world is changed and lose even your place in the old world.