Friday, December 12, 2008

A Prescription for the Big 3 Automakers

From my blog at Pepperdine:

As MBA students, it’s our job to come up with solutions to problems that other people can’t fix. So as an avid fan of the automotive industry, I have a few pointers for what GM and the rest of the Big 3 Automakers can do in the short and long-term to help turn things around.

The first question that should be asked is - what connotation does the term “American car” actually have? Does it conjure up images of V8-powered Mustangs from the 60’s, the gargantuan Cadillac Escalade of today, or do you just think of American cars as unreliable and less desirable than their foreign counterparts in nearly every price category? If you’re like me and you follow the industry, then you know that what we call American; Chrysler, Ford and GM, have all greatly improved their reliability according to most J.D. Powers quality surveys and are nearly as good and efficient as their competitors in each segment in which they compete. But for too long, American car companies turned out such mediocre or downright subpar products that they ended up destroying most of their brand equity to the point where many people don’t even consider buying American today, even if the cars are as good or better than their competitors. This is especially true in the super competitive mid-sized, Toyota Camry/Honda Accord/Ford Taurus segment… It’s gotten to the point where it’s psychological - many people simply will not cross shop a Honda Accord with a Ford Fusion. They won’t look at a Cadillac STS and compare it to a BMW 335i. They may not consider a Ford Focus over a Honda Civic; it’s actually happening in all segments.

So without going delving into the health-care costs and union issues that are plaguing the Big 3, my recommendation is simple - Stay product focused. Find product segments where you can offer something genuinely different, dynamic and with the ability to get consumers excited. If you can’t, then nothing else you do will allow you to overcompensate. You can’t focus on cutting costs any further if people don’t get excited about your product. You can’t throw more incentives and rebates at a particular car or truck if the product is fundamentally dull to begin with. If you don’t want to build exciting cars in every segment in which you operate, then stop building cars. Plain and simple.

In a nutshell this is what each of the Big 3 should do with respect to their sedans:

General Motors - Bring over more of your international sedans. GM has started to bring over Opel’s from Germany and rebadge them as Saturns, but in my opinion, the Saturn brand never had much equity and as good as the Opel-engineered Saturn Astra is, it’s still got the Saturn badge, and that doesn’t help matters. So GM should consider dropping certain brand names from its lineup. Just like no one really misses Oldsmobile, people may not shed a tear if Saturn disappears, or even Chevy - as far as sedans go. GM needs to further consolidate its brands, and consider branding more of their sedans as Opels in America. Cadillac is dynamic and doing well, so it should stay. But Chevy, Saturn and Buick could all be rebranded as Opel. Then Opel could produce 5 - 7 different models and cater to most of the market, and put itself in a position where it could be cross shopped by the Honda Accord, VW Passat and Toyota Camry buyers. The Chevy name should continue in the truck division where it has much stronger brand equity and is easily recognized and has a positive connotation.

Ford - Ever seen the Ford Mondeo? Well, probably not because it’s not sold in America, but it’s a gorgeous car that could reinvigorate Ford’s sagging revenues in the mid-size $20,000 to $30,000 market. This car should be sold in America, and the Fusion and Taurus should be dropped. The European Ford Focus should be sold in America along with the high performance versions of this car, and the current redesigned Focus that’s being sold in America should be dropped. It’s ugly, boring and not likely to be cross-shopped with the Civics, Golf’s and Corolla’s out there.

Chrysler - What Chrysler did with the introduction of cars like the Magnum and 300C was fantastic - reasonably priced products that were beautiful to look at, distinctive, and powerful. While the “powerful” part of the equation might have to the curbed due to the industry movement towards more fuel efficient engines, Chrysler should continue to differentiate themselves and create exciting products like they have in the past.

All in all, the Big 3 should focus on their core competencies, reduce the number of brands they offer, and put an end to the practice of introudcing their best sedans in countries outside the U.S. - if they sold them here, they’d sell very well, and might actually give people a reason to buy American.

1 comment:

Dhaval Doshi said...

I agree with you on that totally. It's important to change the brand image or eliminate brands that distort it.

But I think cost-cutting is necessary considering the economy; and it should start off by the management giving up their private jets!

As MBA students, unfortunately, we are required to give complex answers so it sounds like its worth having us on the Payroll ;-). The fact is that most management problems require more common sense than management jargon!