I took an annual trip to the North American International Auto Show (NAIAS), which recently wrapped up in Detroit. The fate of the auto industry is ground zero for our economy and might be our last chance at saving some semblance of our industrial might. I am no economist, but Detroit is playing on borrowed time and this might be their final hour to get it right. Time magazine even ran a story in December entitled, “Is this Detroit’s last winter?”. The sales slump has hit the industry hard and the figures are sobering:
- Ford turned in an almost $6 billion loss in the 4th quarter and had the worst annual performance in its 105-year history.
- Chrysler staggered through December with a 53% drop in sales and cut 5,000 salaried jobs and received $4 billion in Federal bridge loans.
- New-vehicle sales fell 37% in the U.S. in January – the industry’s worst month in 25 years and the worst January in 46 years.
- Toyota officially surpassed GM as the largest car company in the world
- For the first time, more vehicles were sold in China last month than in the U.S.
- 2 per day: rate of auto dealers going out of business
So, what is the big deal about cars? Like it or not, we are a car country and quickly becoming a car world. What this industry does has huge repercussions for our future as a nation and our planet as a whole. There are 1 billion cars on the road right now and an estimated 2 billion by 2020. In Two Billion Cars: Driving Toward Sustainability, the author suggests that if we keep driving gas powered cars and building communities as we are, the planet just simply can’t sustain us.
2009 NAIAS Slide Show:
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What Was Different This Year?
Electrifying – The 2009 auto show was referred to as the year of the electron. Once leather, wood trim, and plastic cladding were the differentiating factors in car models. Now the sophistication of electronics is king, with goodies like automatic parallel parking, radar accident avoidance systems, solar powered ventilation systems, text messaging to speech and LED headlights. However, the biggest place electricity is being put to work is powering the car. Almost every name plate at the show had an electric offering. Toyota alone introduced three totally new hybrids, including the 3rd generation 50 mpg Prius.
For electric and hybrid cars, it is all about the battery. Batteries are the sweet spot in the equation and the technology still has a long way to mature. The Tesla Roadster, for example, one of the icons of this new breed of cars, takes almost 7000 battery cells weighing in at 1,000 pound to propel the car. All the car makers are betting on a newer battery technology, lithium-ion batteries (Li-ion) which is essentially the same type of battery in your cell phone. So crucial is the battery that GM will establish the first battery manufacturing facility operated by a major automaker in the U.S. Their commitment to the plug-in battery powered Chevrolet Volt now totals more than a billion dollars and the production model of the Volt was center stage in at the show. If all this was not enough, the entire basement of auto show was a track where you could ride in a dozen different electric cars and tucked away in a corner there was a demo of the intriguing Windspire vertical wind turbine charging a car.
Marketing – The marketing has also changed dramatically; there was much less noise, hype and glitz than in years past. There also were no cattle drives outside in the street to herald the arrival of a new truck or a new mini-van dropped through the ceiling like previous shows. It was great to see much less paper. Gone were the excessive brochures and handouts. Toyota was appropriately handing out these highly recycled cards promoting the new Prius made with embedded wildflowers seeds in the paper. As you might expect, the car marketers are all vying to get to their message to your email, into your social media activity, and trying everything to pull you to their web site. They are also using mobile applications and marketing such as the mobile bar code scan for more information as in this example here for the Kia Soul. The most dramatic change was the beleaguered Chrysler, their display looked just like a trumped up dealer showroom. Gone were the waterfalls that spelled messages in the cascading water and vehicles that looked like they were climbing the walls made of boulders.
Sell the sizzle, not the steak. This is one of the first things that I learned in this business; convey the emotion and benefits and tell a compelling story while you are at it. Ford has been doing a great job of this, their truck marketing which communicates very effectively against their competitors with cut away comparisons of parts and features like the size of their bolts, and rigidity of steel beams and the difference between sound deadening quiet steel and the garden variety steel of the competition.
Ford also has some nice interactive work such as what that they did for the 2010 Ford Mustang website. It is a really well crafted 3D web site experience that ties into the displays at the show and really sells the emotion of an American muscle car. This was also coupled with “The Growl,” a desktop application that takes advantage of the unique and powerful sound of this car.
I have always considered business models and offers to be an overlooked part of marketing and the Hyundai Assurance plan is bold and innovative. This plan lets buyers return their vehicles, if they lose their job within a year. Is it working? The company’s market share nearly doubled last month as sales rose 14 percent, the largest year-over-year increase that any big automaker has posted in the U.S. since last May.
China Moving Fast – The battery also plays a significant role for the Chinese manufacturers. One of the brands from China, BYD, was just a battery company 3 years ago and soon they will want to sell you a car like the BYD F3DM. This is their first mass produced plug-in hybrid, a compact sedan which went on sale in December in China, 3 years ahead of GM’s Volt. In the past, the Chinese companies have been literally in the basement of the show. Now they are flexing their world stage might, making their way to the main floor and are more of a real story every year. Warren Buffet’s company invested $230 million for a stake in BYD and Buffet is not known to buy companies on impulse.
Brilliance Auto, another Chinese manufacture, was exhibiting cars in Detroit for the first time. The company also has a joint venture with BMW to build sedans in China. The Chinese have a long way to go, their marketing and design is primitive and the quality, safety, and the performance claims are suspect, but I can remember when everyone thought the same of Honda and Toyota and even more recently Hyundai.
The Road to Green is not Pretty
Car makers were tripping over each other flaunt their green offerings cars at this show, which I found ironic given that I just recently watched the documentary Who Killed the Electric Car. In all the media coverage of the troubles of the auto industries, I have heard almost nothing about how GM had squandered the enormous lead they had with this electric car they built over a decade ago, the EV-1. For various reasons that you can determine for yourself, and despite the pleas of the drivers of these vehicles, GM took all these cars back at the end of the lease and had them destroyed.
The Model T delivered about 24 mpg and one hundred years later many vehicles still don’t match that figure. Stated another way, the actual energy used in the average automobile to propel a human down the road is about 1%, so after 100 years of building cars they are 1% efficient and get the same mpg.
The auto industry has lobbied against fuel efficiency standards for decades yet an inner city high school in West Philadelphia, built a car in 2002 that went 0 to 60 in four seconds and returned more than 50 mpg. They did this all on a shoestring budget, with off-the-shelf donated parts, and little formal education. They have already won the Tour de Sol and now they are a contender for the $10 million Auto X Prize. For their X Prize entry, the team is working on a new plug-in diesel hybrid and they are armed with a business plan from Drexel University. This car will exceed the 100 mpg requirement without sacrificing style, safety or affordability.
The U.S. needs to own a big piece of this green technology, for our economies sake and for the sake of the planet. It not easy being green, but it is necessary and we can innovate as well as any country. The consumer votes with their wallet but the government needs to add some incentive and provide a push here and there, not just a bailout. We are finally making some progress since after decades of fighting to weaken the fuel economy standards, congress recently raised fuel efficiency standards for the first time in 32 years!
Stay tuned the bailout money that has gone to GM, Chrysler and other companies comes with a few strings attached and here are some the next steps and a few developments:
- Exempting interest on car loans from taxation is an amendment in the economic stimulus plan
- GM & Chrysler received billions in federal bailout funds, but have only until March 31 to outline the steps to return to profitability. If officials are not convinced by the plan, they can recall the loan – forcing the company into bankruptcy.
- GM plans to eliminate the Saturn, Saab, and Hummer brands and shrink Pontiac
- The Chrysler & Fiat deal could bring the Fiat 500 here – one of the best cars you can’t buy in the U.S.