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.


  • Harry Boswell

    If GM says they need to produce the cars people want and cannot produce cars which major on fuel economy then why are they second to Toyota?

    Harry, (Prius, Malaysia)

  • TheGiant

    Please help me understand the value of this article. Over and over I have read about bad ol’ GM, yet people seem to continue buying their cars. There are tons of other options out there, none of us have to buy a GM. If GM wants to build gas guzzlers, let ‘em. Let the market drive what is built.

  • Gerald Shields

    When the “market” buys cars that GM can’t (or won’t) make, it hurts a lot of American autoworkers. Plants close and jobs get outsourced to other countries and soon there’s little middle-class folks. There are towns in Michigan that look like war zones because of the plant closings. Simply put, GM is hurting Americans by their profane inepitude. That must stop. They simply must redouble their efforts to design, build and market the vehicles we NEED and stop penalizing their workers because of their stupidity.

  • Tom

    I would like to see where those so called war zone are? Many statements made on the internet are false and by people who really know nothing about towns in Michigan. Get the facts don’t just talk about what you know nothing about.

  • RichardT

    The sad thing is that I really think Lutz believes what he is saying. I looked for a long time for some…ANY…American car that gave superior gas mileage with decent comfort and options. Do the execs at GM truly believe that Toyota is now number one because they DON’T know how to make quality cars that people want? I bought a Prius for the simple reason that there is nothing made in its class in the U.S. that can comptete with it.

  • FLORIAN

    first of all the statement of the loss of work by bad “american management” is not correct…

    i live in mexico and a bunch of “american” cars are made here….(ESCALADE PICK UP AND AVALANCHE about 25 miles off my door..)

    the best selling car (not truck) of the usa is produced where??

    i believe to know the toyota camry plant is in kentucky…??

    about “war zones” and so on…

    actually i was negatively impressed by what i had to look in detroit in december 2006…

    on the other hand,
    if you read the consumer report magazine about cars,
    you will propbably realize what the us car makers made wrong:
    they believe they live on an island…so far my opinion

    best wishes

    FLORIAN

  • Daniel

    Okay some of the comments so far are accurate and some are not. I personally work in sales and it’s always a price vs condition question. Those that can not afford the hybrids, will buy the pure gasoline cars. The market will force those cars to the lower end buyers, which by the way will always be there.
    What we are seeing is a market in transition(SP?). Toyota and Honda are growing Ford and GM shrinking. Markets like this are always difficult to predict. I will be very interested to watch US makers stock price, product price, product offerings and market share over the next 12 months. like or not it all comes down to money.

  • Bill

    “War Zones” – The city of Detroit is in bad shape due to tough social transitions during the civil rights movement of the ’60s. Polarization along racial lines happened, unfortunately having a negative economic impact but it wasn’t plant closings.

    As for GM’s slow decline, they’ve been behind on key automotive concepts for decades. It began with manufacturing quality. Japanese manufacturers revolutionized this concept and Detroit took too long to respond. As a result they started losing market share. Where did they turn to stem the tide? They turned to mini-vans, trucks and SUVs.

    Now with the focus on fuel economy and climate change, they find themselves again behind the curve. This is nothing new, just more of the same starting 25 years ago.

    This is simply creative destruction in the marketplace and GM is not on the creative side.

  • DaveM

    not listening to the marketplace and even not understand how consumer images are created is how GM lost the market and continues to lose ground.

    Want to know why GM and Ford will still lose market share? Its pretty damn simple: The image of quality people carry around with them is NOT with the high end, high price tag models. It is with the entry-level cars. Buyer loyalty is created when someone buys their very first, low budget new car. You make or break right there.

    That is also why Korea keeps gaining ground. They figured it out. As long as the Big 3 ignore the cheap car market or produce clearly inferior models, they will lose ground.

    It’s not the labor, its not the unions, it is not “unfair advantage of competitors” its the leadership and they choose to invest their engineering and design expertise.

  • AP

    Did anyone notice that GM handily outsells Toyota in the US?

    That a Tundra uses more fuel than GM’s trucks (and Toyota brags about how big and tough they are)?

    That the number of recalls at Toyota is way up, and the press has ignored it?

  • CTX

    Heh… I can easily go 35 MPG with my Renault Laguna 1.8 RT without breaking a sweat.
    But honestly I’m very concerned about the prices of gasoline. See, here in Finland the prices are much bigger than in the U.S. Because taxes for it are 70% for beeing exact.
    In our gasoline there is ethanol additives also so it is a little bit greener not much but it’s a start.

    If you’d like to fill-up an average 68 liter tank
    you’d have to pay the following: 94.00 EUR which is = 127.89 USD!!!

    *waiting for some plug-in hybrids and EV’s :]*

  • oyster

    Perhap government regulations and incentives be part of a conversion program.
    Many countries have started on a rebate or incentive program to own a hybrid or green car.
    this should be globally discussed as a concerted effort and strategy.
    Then it will materialize and help in the recovery process.
    otherwise, not only we suffer under the oligopoly of oil prices but also fumes, pollution and global warming.