The party's over

Above: The Ford and Firestone families taking tea - see the full table plan here (Henry Ford Museum)

If it gets much worse, the birds will probably stop tweeting.

Yesterday saw an American president take the unprecedented action of (essentially) firing the CEO of one of the country's largest corporations (GM) and giving another (Chrysler) just 30 days to live. He also mooted a ‘scrappage’-type scheme where drivers will trade in decade old (dirty) cars, to receive money off a shiny, (clean) new one. A similar programme has worked wonders for new car sales in Germany. We’re sceptical this is a good idea from an environmental point of view, but no one seems to want to talk about that right now – driving new car sales is paramount.

Today both Ford and GM launched a scheme, similar to Hyundai’s, to cover finance payments on new car purchases should the owner lose their job.  Will all of this be enough to kick start car sales? Possibly. Certainly it may just be enough to help those in better shape to ride out the current crisis.

The problem is that few people connected to the industry seem to want to look much further than the end of their own noses, even in these unprecedented times. All of the above news is intended to help the auto industry in the short term. It doesn’t solve some key long-term problems.

There is oversupply in the industry, on a systemic, worldwide level. Even with fewer factories and laid off workers, healthcare and pensions burdens will remain vast for the auto industry for years to come. The rate of change of digital technology is still progressing at a rate fundamentally out of step with the auto industry’s development processes, which in turn have difficulty mapping and staying congruent with consumer demand. A piece in today’s Guardian aimed at GM and Chrysler is entitled “Create the market you idiots” and doubtless consumers will echo that sentiment. For years the industry has conducted clinics and market research essentially asking consumers ‘what sort of vehicle do you want’. Predictably enough, cars designed by clinics and market research tend not to be winners, because consumers don’t usually know what they want until they’re shown it. The problem for the industry is that right now, nobody in control knows what consumers want, and what they do want changes with the prevailing wind.

Even if everything being done now results in the industry getting back on track, just what constitutes back on track? Is $250 profit from each car, and every consumer tied to a $250-per-month, three-year car loan, back on track? That’s how it’s been for the past five years, so one might speculate that if this qualifies as back on track, then the automotive train will be falling off the rails again within a couple of years.

The industry needs to respond to bigger, critical issues – like that brought up by The Mechanic’s blog on Edmunds today. Young people aren’t interested in cars anymore. That simplifies the situation too far, but it’s a problem that the likes of Nissan have identified, yet done little about. At 27, I see the issue first hand. I can count on one hand the number of my friends who own a car at all, and the only person I know who’s bought a brand new car in the last two years, I’m engaged to. Beyond that, what’s the industry’s answer to the fact that in big cities like Tokyo, Paris and New York – the wealth generating capitals – between 30 and 50 percent of citizens don’t own cars? Don't think this is important? Last year for the first time, more than 50 percent of the world's populations lived in cities. Think about the logic of this - the majority of people who could afford a car, are now city dwellers.

Time was when Honda were promoting themselves as more than just a car company, and as a mobility provider. Likewise, when Jac Nasser embarked on his CEO mission at Ford, he not only bought Land Rover, Volvo and co – but took Kwik Fit (auto spares and repairs) and Hertz (car rental) under Ford’s wing. Car companies were doing more than ‘just’ making cars.

Now, in the desperate rush for survival, cost cutting has come to the fore. All this nice, cuddly, big thinking and advanced stuff is heading for the bin. Car companies – we are told – must focus solely on building the cars that people want. Apparently they’re going to be powered by electric batteries, and look pretty much like the cars we have today. But that many of the car companies already build great vehicles, and that those that don’t probably soon will (or die), seems beyond doubt. The question is whether in focusing solely on making and selling cars, the car companies will fail to provide the real answers to the future of how people need and want to move around.

Posted by Joseph Simpson on 31st March 2009

Related reading: Boom, Busy and the Revival of Detroit (Mark Charmer, 5th December 2008)

Comments

[Robin Brown]

I've been wrestling with a blog post for a while on the scrappage scheme. I don't think it's a good idea, but I don't see what the alternative is beyond letting companies fail or simply ploughing money directly into manufacturers.

Two major problems have come to a head pretty much at once and, if you're a car manufacturer, without warning: over-supply and the need for greener models. The latter is because, as I see it, governments have realised that something needs to change. The former has been brewing for years.

I think the depth and length of the recession will ultimately decide what happens here. If it's milder than expected it'll be business as usual. If not then there will be a pretty radical overhaul, and not before time. But it will come at significant economic and social short-term pain. Neither option seems desirable.

[niti bhan]

Joe, I think you've hit the nail on the head with your observations regarding urban life and trends but would point out that much of the US isn't really designed to be "walkable" or car less. Just the few cities like San Francisco, NYC and maybe Chicago at a pinch.