You hear a lot about the team approach auto companies are using and how it's taking costs out of their products.
A recent newspaper reported on how two car companies took some costs out of their latest models using the team approach. The savings were small and consisted entirely of product changes and process innovations. While these efforts, in general, are to be commended, the amounts usually have little impact on the company's total cost picture.
These reports give people the impression that the automakers are right on top of their costs and that the high price you're paying for their cars is not because of loose cost controls. But, these reports mask other areas where, in my opinion, significant cost reductions can be realized.
Manufacturing costs are forever being evaluated to wring out every last penny, but other areas are not subject to such rigorous evaluations.
One area that comes to mind is advertising. I think it can be reasonably assumed that a company that builds 2.5 million cars a year will spend at least $550 million on outside advertising, plus considerable inside administrative costs. If these expenditures were subject to serious evaluations, huge cost savings could be realized.
You have to wonder if the large amount of money spent on some types of advertising is really worth it in terms of its effect on the bottom line. For example, I've read that a commercial during the Super Bowl runs $2.5 million. That alone is $1 per car for a company that makes 2.5 million cars per year or more.
I am more inclined to believe that money spent on promoting the company's products would do more to increase sales. Money spent merely to promote the company's name may have little impact on sales. I'd rather spend money promoting the fact the car that won the Indy 500 used Goodyear tires than spend money on a blimp with the name Goodyear on it.
Advertising companies also promote their clients through sporting events and golf outings. The idea, I guess, is that if people hear a company name often enough, it will become imbedded in their subconscious.
I think this is theoretical poppycock. Most people don't remember who sponsored what sporting event.
Advertising expenditures seem to be "off limits" when it comes to close evaluations. The media like to criticize American automakers, focusing on manufacturing inefficiencies, out-sourcing, heads-per-car, etc., but they don't talk about advertising practices. I wonder why...
I think the time has come for the auto companies to take a good hard look at their advertising strategies.