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 authorfrank.com. He may be contacted here by email: [email protected] and followed in Twitter under @Authorfranks
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