Humans learn from mistakes — it’s part of our survival strategy. This is why disco only happened once, aided of course by John Travolta’s inability to squeeze back into his white pants.
The meltdown of the auto industry in 2008 wasn’t entirely the industry’s fault, but its subsequent reincarnation affords us an opportunity to see if it also has the ability to learn from past missteps.
The industry obviously had to downsize to meet lower “recession-style” demand, and in cases like Chrysler and GM, just to stay afloat. But even with modest sales in 2009, lots of automakers turned nice profits. With lower operating costs, they didn’t have to sell as many units, and by not over producing, they didn’t have to sell those vehicles at “fire sale” prices. Not only is this a better profit model, it’s better for the automaker’s long-term brand image and health. Can they stick to this plan?
The telltale signs of oversupply are incentives — zero per cent financing, manufacturer rebates, employee pricing, bobblehead dolls for the first 1,000 customers. Automakers don’t like incentives, but it’s hard to look the other way, when you’ve got product piling up and competitors eating your lunch. We’re seeing more and more incentives creep back into the market, including many now based on fuel discounts.
Short-term fix or a slippery slope? We’ll see. I think most automakers are just trying to adjust to the softer-than-expected rebound of the economy.
However, many are sticking to their guns about not over producing. GM, for example, had a problem keeping up with Chevrolet Equinox and GMC Terrain demand. Both are built at the company’s plant in Ingersoll, Ont. But instead of throwing big money at another plant, it addressed the situation with two shrewd moves — adding an Equinox/Terrain line at its Oshawa facility, and introducing the Chevy Captiva, a “fleet only” Mexican-built crossover based on the recently departed Saturn Vue.
Another automaker lesson learned since 2008 is don’t alienate your suppliers. When automakers downsized, the supplier community suffered collateral damage. The automakers didn’t shed too many tears over this, but now that they’re in recovery mode and need more parts, the auto parts suppliers aren’t too quick to shake hands and make nice.
And then there is the leasing lesson: Ford, GM, Chrysler and others stopped leasing vehicles even before 2008, as they failed to manage the risks of using low, monthly leasing payments to move vehicles off lots. To get low leasing rates, they had to artificially inflate the value of what the vehicle would be worth as a used vehicle at lease end. The automakers’ in-house leasing companies were often on the hook for these discrepancies, which was exacerbated by a big batch of identical cars entering the used market at the same time, further depressing values.
Ford, GM and Chrysler are, or will soon be, tipping their toes back into leasing, and we wonder how disciplined they will be this time around.
I’m guessing way more disciplined, but you never know.