Things are going badly for U.S. automakers and they’re not going to get better soon. In October General Motors, said its car sales fell 12% and truck sales dropped 30%. At Ford car sales fell 11% and truck sales fell 31%. Vehicle sales totals rise and fall, but right now this decline is being used to prove or justify all sorts of agendas – health-care reform, alternative-fuel vehicles, corporate excess, and the need to “save” our manufacturing industries.
U.S. automakers do have big problems. They have huge volumes of debt and unimaginable financial obligations to workers and retirees. Their ongoing operations are expensive to maintain. In North America they have competition from transplanted automakers, and they are straining to get more revenue from the world’s emerging markets. They’re under pressure to comply with new regulatory standards at their plants and with their product designs. And, they’re getting set to restructure their operations, which should put them at odds once again with state and local governments and union officials.
So I recognize all these problems, but I have a hard time seeing how they’re all exposed by declining vehicle sales. Except for one thing …
You may call it a hunch, but I expect that in the coming months, when analysts begin sifting through all the details and scraps of information to understand how everything began to unravel for the U.S. auto industry in 2005, the introduction of “employee pricing” will get a lot of attention.
General Motors introduced its “Employee Pricing for Everyone” marketing strategy in June, and it was immediately successful at clearing out excess inventory. GM deliveries rose 41.3% in June and 19.7% in July, and Ford and Chrysler soon matched the pricing pitch to draw buyers into showrooms. The plans succeeded in helping the automakers achieve near-record sales in their first two months.
Employee Pricing plans were discontinued September 30, so at least one reason new car sales are down in October must be that a large number of likely buyers already made their purchases. In that sense, the October declines would be an outlying statistic. The effect of Employee Pricing will be around much longer, though, because they revealed a side of the auto industry they would have done better to keep hidden.
Employee Pricing made official something we all knew, but didn’t want to think was true: that there has been a separate set of standards for insiders. Now, that revelation is an invitation for us to question the executives’ compensation, the workers contracts and benefits, the corporate accounting, the government subsidies, and every other sweet deal and shortcut these organizations have used as they accumulated all those debts.
Just as everyone has an opinion, everyone feels they have a stake in the auto industry. Whether you’re a supplier or a customer of the Big Three, you want to believe you’re dealing with solid, honest organizations. Suppliers take pride in their contribution to high-quality products, and customers want a ride that exhibits their good taste and judgment.
Declining auto sales may not lead to better corporate management or higher-efficiency cars, or any of the other big-agenda arguments pinned to the Big Three’s problems, but the reason behind those poor sales is going to make it harder to tolerate their explanations.
Despite all these serious problems, things will improve for U.S. automakers. Things will improve because they have good operations making quality products, and because they hold a place in our economy that cannot be supplanted. And, when they acknowledge again the value of all that, they’ll begin to reclaim the goodwill they’ve been discounting for too long.