Thrift or Technology? It All Comes Down to Product

Detroit’s automakers are getting their butts kicked from one end of the market to another. Yes, each of them has several models that are doing well. And every now and then one of them has a good sales month. But the long-term trend is unmistakable: Every year, more and more new-car buyers switch over to import brands.

There are a number of reasons for this. To begin with, the market is changing. For most of the 1990s the Big Three had the truck segment to themselves. But they were lucky, not visionary. They were already building sport/utility vehicles, and full-size pick-ups and minivans. And for whatever reasons, sometime in the early 1990s waves of American shoppers started buying trucks instead of cars.

Strangely, it took a long time for the import brands to catch on to the truck phenomenon, and longer still to do something about it. But by 2000 they had caught up, or were putting the capacity in place to get there. Whether it’s cute utes, compact utes or full-size utes, there are plenty of import brands to choose from. Toyota Motor Corp. already has a full-size pickup and Honda Moytor Co. Ltd. and Nissan Motor Co. Ltd. are well on the way. Honda and Toyota also have competitive minivans. The Big Three’s hegemony over the truck segment is over.

And it’s not just trucks. The Europeans plus Lexus wrested the luxury segment away from Cadillac and Lincoln over the last decade. Ten years ago the American brands had about 80% of the luxury segment. Today, it’s flipped. The import brands have 80%. And at the bottom of the market, the Koreans are taking over the entry-level segment.

The spin doctors at the Big Three rationalize this by shrugging their shoulders and saying it’s inevitable that they would lose market share with more competitors coming into the market. But the main reason why consumers are turning to the import brands is that they get a better product, with higher quality and more technology. That’s no accident.

The Big Three are finance/marketing driven organizations, while overseas automakers are engineering/technology driven ones. The Big Three focus on shareholder value and selling the sizzle, while the imports focus on manufacturing excellent products with newer, better technology. Guess who’s producing better financial returns and higher market share?

The top executives at the Big Three have historically been MBAs, who, with very few exceptions, don’t know product and have little appreciation for it. When GM’s chairman Jack Smith was in China last year for the Job One ceremony to drive the first Buick off the line, he tried to release the parking brake. Instead, he pulled the lever to pop the hood open. Do you think we’d ever see VW’s Ferdinand Piech, or Honda’s Hiroyuki Yoshino make the same mistake? Not in a million years.

The top executives at the European and Japanese automakers are engineers who came up through the core business. They’ve designed components, and worked in factories, and launched new-car programs. They know the value of technology. Whereas the MBA-executives do everything to cut cost, the engineer-executives do everything to build a better product. Whose car would you want to buy?

It’s pretty obvious. American consumers want to buy their next set of wheels from the companies that are giving them better cars and trucks. They hear, by word-of-mouth, that Accords and Camrys never break. So they go out and buy them. They see, with their own eyes, that BMW, and Mercedes and Lexus have beautifully understated designs. So they want them. They know, from their own experience, that they’re tired of the brands they grew up with and want to try something new. And man do they have a lot of choice!

The finance-driven Big Three have a hard time trying to justify new technology. They see it as adding cost. But their cost accounting methods aren’t good at capturing some of the intangible benefits of technology that result in higher customer satisfaction. Here’s an example: 80% of Camrys are sold with 4-cyl. engines. Why? Because it’s a great engine. Smooth, quiet, efficient. I’ll bet that engine costs more than any of the fours from the Big Three. But I’ll bet it’s also cheaper than any of the V-6’s the Big Three have to use to get the same kind of performance.

Yes, the import brands do cost more up front. But they also have better residuals that translate into lower lease payments or higher resale prices. They also attract more upscale buyers who can afford to spend more on a car and who are less affected by an economic downturn.

This industry runs in cycles. A few years ago the Big Three looked brilliant, restructuring their operations, acquiring competitors, and venturing into e-business. Conversely, the Europeans and Japanese saddled themselves with over-engineered products that were too costly because they used technology for technology’s sake. What’s needed is a balance between the two management philosophies. But it’s clear the Big Three have let the pendulum swing too far because they are losing customers literally every single day.

Customers don’t care how well your stock is performing. They don’t care if you’re the low-cost producer. They don’t care if you’re the fastest to market. All they care about is the car they’re buying. That’s why it all comes down to product. o

-- John McElroy is editorial director of Blue Sky Productions and producer of "Autoline Detroit" and "American Driver" for WTVS-Channel 56, Detroit.