And so we find ourselves at the dawn of a new millennium(Footnote: Yes, I already know: the new millennium doesn't start mathematically until 2001. But the rest of us are going to celebrate the beginning of the 21st century at the end of the month. Sorry that you'll miss the party, I'll see you at next year's, too!), whilst the auto industry is poised for one of the greatest structural changes in its century-long history. The automakers of 1999 look out anxiously onto a tempestuous business landscape, where huge clouds of capital billow around the globe, blown to promising markets by electronic winds of commerce.
Desperately, frantically, they want to do something, anything to harness more of that capital flow, diverting it into their coffers, if not by having consumers buy their vehicles, then by having them buy their stock! And hence their problems begin.
When it comes to explaining their stocks' performance on Wall Street, every automaker acts like the comedian Rodney Dangerfield. He fumbles with his rumpled tie, looks bug-eyed at his shareholders and pouts out that immortal punchline: "I don't get no respect."
Back in the good old days when being classified as a Blue Chip investment was something of an honorific title, all an automaker had to do was pay its dividend during the down-cycle and wait for the next upturn in the economy. Wall Street sagely recommended automotive stocks as an important part of every investor's investment portfolio. Automotive stocks seemed like such an intelligent way to save for one's sunset years.
But the dotcoms of the New Economy have put an end to that strategy. Today most investors feel foolish investing in automotive stocks. They know their money is going to seriously underperform the market as a whole. And the market can make them rich!
Automakers are worried. Shareholders are voting with their feet. Boards of directors are under pressure to flex their fiduciary responsibility. And most important of all, management's bonus is directly and inextricably tied to the performance of the company's stock. Heavens! The bonus is paid in stock!
In the early 1990s automotive executives set out to shake off their reputation for moving at a sloth-like business pace. They vowed to adopt the business tonic of the late 20th century, and initiated brutal cost-cutting programs, squeezing billions of dollars out of their suppliers. They launched massive headcount reduction programs, carving tens of thousands of jobs out of their vertically integrated industry, replacing it with a lean, rippling organization. They invested heavily in emerging markets and engaged in major mergers and acquisitions. And they spewed out slews of shiny new products.
Proudly, they then showed off the results: solid quarter-to-quarter earnings improvements; nay, records. Piles and piles of cash that, collectively, exceeded the Gross Domestic Product of most small nations. Commitments to buy back billions of dollars of shares from shareholders. Car sales, that in the United States market at least, hit 15 million units a year like clock work through most the decade and finally smashed the all-time record.
So much for all the effort. Wall Street shrugged.
Their stocks remained, and are, mired at a price-to-earnings ratio that is one-third the current average for the S&P 500. If they could only just get to the old average their stock prices would double. Yet, investors are scurrying past the brawny, thick-necked automotives and are flocking to the evangelical allure of the ever-rising stocks of the New Economy companies. What's an automaker to do?
Some of them seem to get it. Two at least -Corp. and Motor Co. They realize they have to do something drastic. They realize they have to re-invent themselves. They realize they have to break out of their cumbersome, capital-intensive, manufacturing chrysalises and emerge as fluttering, Internet-based organizations that market automotive products and services on a subscription-based revenue model.
Whew! In the old days it was good enough to strive to give customers perfect cars, cars that would be so good that customers would not show up for years until they needed to buy new ones.
But now automakers have a new goal. They want to sell the customer a customized car that comes with a host of services. They want to sell Internet access. They want to sell satellite radio. They want to sell information services. And they want us to pay for it all on a monthly basis. That's what they mean by a subscription-based revenue model.
This is whyformed e-GM. It yearns to join the New Economy. And it's not just what it's doing, but how it's doing it. Believe me, two years ago they would have called it the General Motors Global Integration and Synthesis Process Task Force, or something like that. Instead, now media-savvy, they slipped a little "e" in front of their name. I'm amazed they didn't add a dotcom.
, of course, is furious that GM beat it to the punch and is racing to put its own e-business plan in place. As others awaken to what's happening, they too will follow.
And so we come to the close of the century, with automakers turning their backs on their industrial business models, eagerly grasping at a new system that offers the promise of higher PE ratios.
Let's hope Wall Street appreciates the effort.