Wall Street's concerns come from the fact that all those arguments have a flip side: Even the highest mountains of cash can burn quickly. As fixed costs tower around 80 percent, a collapse in the demand for SUVs—or worse, a strike that would interrupt production—could eat cash reserves in months. The borrowing capacity is still large, but increasingly expensive. The management and engineering talent is stretched increasingly thin. Although plentiful, assets' value is not easy to realize as few acquirers would be interested; many of those plants can hardly be reconfigured to turn out someone else's products.
To stay out of trouble, it might not be enough to fine-tune the system. If it could be done, it would have happened by now. Perhaps a radically different strategy has to be imagined to win the competitive war.
As an exercise, how about taking the viewpoint of the brand? Perhaps the idea would make "car guys" shrug, but there is a case to be made that many of the answers to the ills of the automotive industry lie outside its boundaries.
For the decades leading to World War II, progress in the automotive industry was undoubtedly driven by engineering breakthroughs. For the last fifty years, the fact is that car manufacturers have refined existing technologies rather than truly innovate: stiffer body structures, lighter materials, smarter electronics, better balanced engines. In sum, all cars are fundamentally the same. They have largely become a commodity, like cereals.
How long is it going to take for Sir Richard Branson to put
the Virgin brand on a sexy car?
Brand management is a time-tested response to such commoditization of a consumer product and would make as much sense for car manufacturers as it did for Procter & Gamble, or Colgate-Palmolive. By narrowly focusing on vehicle engineering, features, and price, perhaps Detroit is missing the forest for the tree.
How long is it going to take for Sir Richard Branson to put the Virgin brand on a sexy car? Today, such a car could be engineered by Porsche in Germany, designed by Zagato in Italy, assembled in South Korelina (a not-so-Utopian country where taxpayers finance universal healthcare and unions are entrepreneurial) with parts made in China, and distributed in the UK through Tesco supermarkets or the Internet.
As the industry's traditional entry barriers have vanished, there is no fundamental reason that could stop an entrepreneurial CEO from penetrating the automotive industry. Computer manufacturer Dell has shown that almost every element of a value chain can be outsourced. Supermarkets have several decades of experience with private labels, which could make Wal-Mart the first automotive private brand in the US.
If Virgin or Wal-Mart could do it, so could GM and Ford Motor Company. The Ford "oval" could possibly float on a car fascia that was never touched by a Ford employee. The "Built Ford Tough" positioning—probably the most trustworthy slogan Ford Motor Company has ever produced—could perfectly suit a mountain bike or even roller blades.
Many will remember that such brand-focusing had been attempted in the 1990s and did not stop the fall of market shares. GM hired brand luminaries and Ford Motor Company's Jac Nasser embarked on a consumer-oriented reorganization. The stumble of those experimentations with brand management does not make a brand-focused scenario unrealistic. Detroit is a cradle of strong global brands, which makes it a good foundation for brand management as a core competency. It is particularly true in contrast with the more traditional Detroit core competencies—e.g., innovation, engineering, mass production, logistics and processes, financial control—that have fallen deeply, relative to other industries. Chances are that the best talent in any of those competencies will actually be found outside the rust belt. Considering the alternatives, branding is a serious contender as the cornerstone for future strategies.
Some initial successes emerged from Detroit’s attempts to go against the wind. In 1990, General Motors launched a new brand called Saturn, which raised eyebrows in the automotive world. After steadily losing market shares to the Japanese car manufacturers, Saturn was a bold answer from GM to regain the initiative. It was the first new car brand Detroit launched in the US since 1939, when Ford launched a brand named after another planet, Mercury.
With Saturn, GM built a new plant in Tennessee, hired new workers, got new union agreements, selected new dealership franchises (called "retailers"), and implemented new no-haggle sales processes. At 46 years old, the average age of the Saturn buyer was twenty years younger than the new Buick buyer. Even though the car wasn't great, its owners loved the brand and even joined Saturn clubs. The moral of the story is simply that GM—or Detroit, generally speaking—can take risks and succeed.
GM and Ford may suffer from insularity and isolation
Surprisingly, for GM, the fairy tale seems to have been a pill hard enough to swallow that the bold therapy was progressively abandoned. Today, Saturn is no longer "a different kind of company," as its slogan went. It is totally assimilated into the GM structure and embarks on ambitious repositioning strategies to regain market shares. In the meantime, Toyota is about to take the leadership of the world market.
Why is it so hard for the Detroit manufacturers to change and implement brand management successfully?
GM and Ford have (almost) never seen eye to eye, but they seem to share many of the same diseases. Deeply rooted in southern Michigan, the personnel of both firms may suffer from insularity and isolation: Insularity because of the regional reliance on a single industry, and isolation because Michigan is geographically far from the crossroads of the world. As a result, Detroit misses many early trends that emerge in more cosmopolitan areas. In an industry that has long product development cycles, being a trend laggard is more often than not the kiss of death.
As a result, Americans increasingly drive "imports" and less and less "domestic" vehicles. Put bluntly, both GM and Ford have grown out of touch with large segments of the market.
There is no spell against Detroit, or bad karma in southern Michigan. On the contrary, Detroit manages to be in tune with the American heartland when it is time to satisfy the appetite for light-trucks and SUVs. In that specific case, every layer of the Detroit corporate machine feels and breathes the very same emotions as its customer. Engineers, designers, marketers, and management were all in tune when creating the F-150 and Explorer, for instance, two bestsellers of the Ford stable. When it is time to understand other markets, the heartland location appears to be an obvious handicap.
Marketing goes beyond focus groups, analytical research, and field trips. Nothing replaces being in the midst of the action. In the late 1990s, the headquarters of Ford's Lincoln Mercury division relocated to Irvine, California, in an attempt to be more in tune with trendsetters. It was a bold move in the right direction, which was later reversed to cut costs as part of Ford Motor's turnaround.
With the center of gravity shifting to China, India, and other markets, Irvine was not such a bad idea after all. If only Henry Ford had been Californian…