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GM and J.D. Power attempt to understand the why behind Chevy Cruze sales

Judi has received multiple calls from GM and now a survey from J.D. Power and Associates to provide feedback on her recent purchase of her 2012 Chevy Cruze. Question is: Why doesn’t GM understand its own success here, when all they have to do is recall what Henry Ford did? Modifying a famous political line, it’s the “personal” economy, stupid!

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The legendary trader, W.D. Gann may have written and preached that “time is more important than price" with regard to stock price, but that obviously doesn’t apply to automobiles. In the case of a comparison of the Chevy Cruze to the Chevy Volt, for example, personal affordability via price is king; and Henry Ford understand that as a first principle.

Judi indeed loves her new car. What’s not to like? It’s larger, more comfortable, more plush than her 2009 Chevy Cobalt. And the price was competitive with other models; and it beat the Chevy Volt by at least a whopping $200 per month. As an early-retired nurse and now a small-business owner, she thinks that’s important.

Yes, the name of the automotive value game is the monthly outlay of cash, the mullah, the bucks. And Henry Ford, who had no marketing degree, understood that clearly. If a modern OEM cannot understand that much today, then they are doomed to repeat bankrupt history.

Naïve or Uncaring Automotive Marketers?

Having lived within the automotive corporate world for over 39 years, I dare say that management teams seldom understand or truly feel for customers, especially marketers. How can they, as they have salaries far beyond many of their potential customers? Don’t misunderstand; they want customers They even want to get into their heads so as to best get into their pockets via their product offerings. That’s just business; nothing personal.

To put that in perspective, though, read what Jason B. wrote me about Volt pricing, “The Volt is a total joke. Don't we remember what made Ford so famous? He made it possible for the working man to actually own a vehicle. The working man will never be able to afford this ride. Let alone it's a ride that most people don't even want.”

Jason has a point. You have no idea, though, how many times I have witnessed directors, marketing and studio managers state that if you can get this much or that much more, why not go for it? Easy for them to say, because they get a car as part of their benefit package. As if the folks buying the new model can just pull more dollars from the money tree in the backyard. In the stockholders mind, that makes perfect sense, but not from the perspective of paying customers.

Fact is, GM, Ford and Chrysler literally tripped over themselves a number of times over my 39 years working with and for them. Each has played the brand management game to the hilt; each has priced their cars based on union contracts levels that were never reached by their foreign counterparts; and in many cases with poor quality and durability. And now their foreign competitors have learned to play the same price game to force more profits. Have you priced a Honda and a Toyota lately?

Sure, quality has improved for all. In fact, that is every automotive OEM’s price of admission. Nevertheless, price-to-value ratios have risen immensely; and not all of it can be blamed on so-called material inflation. For sure, no CEO is hurting for income, even those that went bankrupt. And union workers do not pay as much for medical as you and me. At least the now defunct Saturn had a business model that understood the need to share and be fair.

Another fact is, technology gadgets have abounded to the point where they have finally priced the automobile out of the reach of average citizens. Customers almost have to give blood and the firstborn as collateral. And buying used is risky, especially when those tech gadgets go defunct.

Yet, we’re told today that things are different. People supposedly want these gadgets; and the government is forcing more and more mandates. All true, but where is the big car for a family of 5 at a price where the mom, if desired, can stay home and raise the kids?

That is why foreign cars like those from Japan and Korea had been so popular. Customers got more bang, quality and durability for their buck. Yet, once they got a foothold, notice how their prices have risen as well.

This is far different than the electronics industry where prices have fallen while technology and performance rose. Why not in the automotive world?

Foreign transplants have no unions; yet, their prices are not significantly less. Those Hondas and Toyotas are no longer cheap. And while they are being challenged by the likes of imported Kias from Korea, it’s only a matter of a few short years before BYD from China will be eating their lunch, too. Even CODA Automotive has China ties. In time, though, parity might win out.

Point is, cars are not cheap today, and they need to be, not just the introductory models; and the masses are getting led again by the nose with green offering that cost too much.

Take the Chevy Spark, for example, which is built in Korea. It's a nice car; small, lacks the utility of the now cancelled Chevy HHR, but it is still overpriced relative to the offering. Where is the lighter body structure that avails 45-plus MPG? Furthermore, there is no electrified version, which will cost even more.

Why am I complaining?

Simple. The government wants green cars, but the price of green is outstripping our ability to produce enough green dollars to pay for them. Take the Chevy Volt, for example. It sells for $42K less $7,500 government (meaning taxpayer) subsidy. That buys a lot of gasoline, especially when it’s now available from the Bakken area and Canada.

And the President is not helping America’s energy and the economic situation by foiling that pipeline just to maintain his personal political capital with the green portion of his party! We need nat-gas cars as part of economic balance.

Is there an American OEM solution to getting real value that folks can afford? Aside from the obvious need for pushing a national energy policy, for one, auto companies need a sense of urgency to return greater value before China comes fully on-line; or the American OEMs risk a future pricing debacle over affordability. Offering more content while holding or raising the price is not the move that best suits the customer today.

Today’s customer needs and wants a cool looking car at a price they can “easily” afford, not sweat for 36 months. Yes, Henry Ford understood that much. Perhaps the corporate character needs a makeover; one that places automotive wages on par with the true income of customers, and that includes management. Maybe then they’ll understand why one car sells better than the other. Modifying a famous political line, it’s the “personal” economy, stupid!

About the Reporter: After 39 years in the auto industry as a design engineer, Frank Sherosky now trades stocks, futures and writes articles, books and ebooks like, "Perfecting Corporate Character," "Awaken Your Speculator Mind", and "Millennial World Order" via He may be contacted here by email: [email protected] and followed in Twitter under @Authorfranks

Additional Reading:
GM CEO Akerson dismisses price factor with building 60,000 Chevy Volts in 2012
GM's CEO Akerson wants to build 60,000 Volt's in 2012
TorqueNews Exclusive: Fred Fresard, attorney for Dykema, addresses Chevy Volt fire
Corporate culture as important as innovation per Booz & Company
New global winners emerging in alternative fuels says Lux Research

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@bobbleheadguru (not verified)    December 22, 2011 - 4:24PM

Have you driven a Volt?

I do think it is unfair to compare a Volt to a Cruze. It is like comparing a Macbook Air to a netbook. Same size.... different value proposition.

Why don't you compare the Volt to a BMW 3 Series?

In my case, I traded a Impala lease for a Volt lease. I am paying $160 more in payment than a new version of the Impala... but saving $130-160 in fuel (even including electricity). So It is just about break even for me. The high MSRP belies the affordability of the car, if you actually do the math.

Frank Sherosky    December 22, 2011 - 5:45PM

In reply to by @bobbleheadguru (not verified)

Thanks for writing. With regard to the Volt, yes, I have driven the car on more than one occasion. I have also driven the Ford EV and the Nissan Leaf. Still need to drive that Tesla, though.

With regard to an unfair comparison to the Chevy Cruze, I can only agree on a technology basis. The Volt is a different vehicle species, so to speak. I like the Volt technology; it is cool, viable and safe, in my opinion.

However, you then brought up the words, “different value proposition;” and that’s where I disagree, with all respect. Value determination in this case requires an economic perspective.

1) I estimate, based on your input, your monthly outlay is near $450 per month. That’s a fixed cost whether you drive or not.

2) Compared to a Chevy Impala which seats 5, the Volt seats 4; therefore you accepted less capacity for more money.

3) You have only broke even by your own reckoning, but you are in good shape if gasoline rises to $5 or $6.

4) The Chevy Cruze is about the same size, has greater seating capacity and has a monthly lease near $210-230 per month. The savings delta in basic cost buys a lot of gasoline; and you have the option of limiting driving if gas prices rise.

Finally, the purpose of the article was to show that electrification is coming at a mighty cost to the average working man and woman. Point is, it takes $450 per month just to break even with an Impala per your input. From an economic perspective, that’s not value enough for the masses in my opinion. We need a lower, break-even point; and the new IC engine technologies are going to give electrification a challenging run real soon.

As a GM retiree, though, thanks for buying GM.

Asullyvolt (not verified)    December 23, 2011 - 6:49AM

It's true - everytime I read an article complaining about how expensive the Volt is they always compare it to cheaper vehicles. When I bought my Volt I wasn't deciding between a Cruze and the Volt, I was deciding between an Infiniti G and the Volt. There is no shortage of $40,000 cars on the road. It keeps being mentioned that the price differential "buys a lot of gas" but that's a silly argument to use against vehicles which are designed to limit the use of gas. I drive 20,000 miles a year...after 6 years, the money I save on buying gas as compared to my retired Maxima put towards the payments on the Volt will have it costing me less than $20,000. After 11 years the car will have roughly paid for itself in gas savings. What other ICE based vehicle pays for itself? New technology is always more expensive...remember when a 42" plasma television was $10,000 or a DVD player was $1,000. If early adopters were not willing to absorb the higher costs of new technology it would not survive long enough to become mass market affordable. Point is, I love my Volt and you're welcome.

Frank Sherosky    December 23, 2011 - 1:23PM

The comments here have expanded the affordability issue immensely, but for the good, in my opinion. Please read:

It is not intended to disparage the comments at all, but to make everyone aware that the issue of affordability is directly related to subsidies, which by the admittance here, may not be needed since these cars are price targeted above average buyers and their ability to afford them.

Asullyvolt (not verified)    December 23, 2011 - 10:25PM

In reply to by Frank Sherosky

Understood but reducing or eliminating dependance on gas / oil is the endgame and that benefits everyone. Not everyone uses public transportation but that is subsidized. Not everyone eats meat or drinks milk but that is subsidized - regardless of your income. Not everyone spends time in prison but that's funded by tax dollars for the greater good. Technologies which make their debut in higher end vehicles eventually trickle down to mass market...I think the subsidies are the Government's way of turning the trickle into a gush. If there was nothing to this and there was no market for these then Nissan, Toyota, Honda, Ford, Fisker, Tesla and Smart to name a few would not be throwing their respective hats in the electric ring. Prices will come down in time folks...just be patient and stop crapping on the first guys to market and those who support them.

Frank Sherosky    December 24, 2011 - 12:45PM

In reply to by Asullyvolt (not verified)

Dude, I'm neither crapping on the first guys to market the fine technology or those who purchase them. I'm simply pointing out the obvious: EVs are not affordable by the masses right now; but that is not sufficient reason to be subsized by the masses for those few who have the resources to afford them.

It's up to the OEMs to deliver products that people can afford; that is their challenge; and that has to be met in a free market. Subsidizing anything but research is not free market; and implies the government is choosing the tech preference for us.

When disc brakes first appeared, they showed up on premium vehicles, but they were not subsidized; same goes for air bags, ABS, cruise control, etc.; all safety components that helped society. Yet, those first adopters who could afford them bought them on their own without any help from me and other taxpayers. Why is it different with EVs? If energy independence is the goal, then the faster route is natural gas, based on the government's own data which shows by 2030 less than 20% of total vehicles will be full EVs.

If you want to pay the premium for an EV, then I applaud you. But do NOT expect me or your fellow citizens to help pay for your transportation choice, as it is NOT in everyone's financial capacity to take advantage of the same offering. At least with busses, anyone can use the services whether they choose to or not. You even have a vote with regard to funding at the ballot box; not so with EV subsidies; and at a time when the national deficit is already absurd.

Yes, prices will eventually come down for EVs, but right now a high tech IC engine like Ford's EcoBoost is the better financial choice for the masses. Now change turbos to electric superchargers, or better yet change the engine to split cycle with air hybrid, and the ICE is an even better buy than today's EVs on a pure financial and affordability basis.