Sense and Respond
New-vehicle buyers are fickle. Some choices are predictable (once children are spawned by a young couple, it is a good bet that a minivan or SUV is going to replace the two-door they drove on the honeymoon) but other choices are very hard to predict. Why fins? Companies trying to satisfy volatile consumer tastes need to do two things: sense and respond. Sense when a change has occurred. Respond to the change with appropriate actions. Now let’s look at how two of America’s largest companies sense and respond.
Rick Wagoner, CEO of GM, said in Tuesday’s USA Today, "We have actually been a little surprised how the market has held up through … $3-plus gas that we’ve had here over the past year."
Mark Fields, chief of Ford’s North American operations, said, also on Tuesday, that Ford is looking at deepening their plan to cut jobs in North America because consumer demand for more fuel-efficient vehicles is "more permanent than we expected."
These two statements reveal a fundamental difference in thinking about sensing and responding to market conditions. Both companies have sensed that higher fuel prices are adversely affecting their sales and profits. But their responses could not be more divergent.
GM responds with more of the same bigger, badder SUVs and pickup trucks it has staked its recovery on. In effect, GM is saying, "$3 gasoline? It wasn’t as bad as we thought. $4 gasoline? Bring it on!"
Ford responds, in contrast, with, "Oh, consumers do care about fuel economy, after all. Are the products we have appropriate now?"
In the auto industry, this is about as close as it gets to "night and day." They agree on sense but not on respond. Of course, it would be hard not to sense that they are having difficulties.
I was going to say that both GM and Ford have been hammered by high fuel prices for a long time now but, that’s really not fair to fuel prices. Fuel prices don’t hammer multinational corporations. GM and Ford are being hammered by consumers who, quite rationally, care about the full cost of acquiring and operating their cars. And hammer is also not the right word to describe what consumers are doing. Abandon? Spurn? Eschew?
Responses need to be more than words, they need to be actions. So, I will wait and see whether Ford and GM actually behave differently in the future before I reach my verdict.
Walter is the Director of the Automotive Analysis Division of the University of Michigan Transportation Research Institute (UMTRI). He studies the adoption by consumers and automakers of new powertrain (electric, hybrid, clean diesel, fuel cell, alternative fuels), safety, and telematics technologies. Walter worked for General Motors for 9 years in sales forecasting, product development, marketing, and manufacturing (1993 found him on the floor of one of GM’s component factories). Prior to joining the University, he was Executive Director of Forecasting and Analytics for J.D. Power and Associates. He earned his doctorate in Economics from UCLA in 1983.