Category Archives: General Motors

Auto Dealerships Adapt to Reverse Showrooming

Applied Management, Automobile Industry, Business Management, Business Model, Consumer Behavioral Research, Economics, General Motors, Management Research Study, University of South Florida

Todd Benschneider – University of South Florida
October 7, 2013
Reverse Showrooming Trends Benefit Automobile Dealerships
A current trend in consumer spending known as “showrooming” has deterred many retailers from investing in additional brick and mortar stores. “Showrooming” consumers first visit storefront locations to try on sizes or look at samples; however, those shoppers purchase the goods later through the website or from a lower priced competitor. Long term trends of declining incomes from storefront locations have influenced large chains to reevaluate the return on investment that storefronts will generate in the 21st century. The widespread arrival of mobile technology magnified storefront spending gaps, as many tech savvy consumers now use price comparison apps to reduce the time and fuel spent in pursuit of the lowest prices.

In contrast to showrooming, a new retail trend is emerging as a byproduct of social media; a new breed of reverse showroom shoppers are arriving in stores ready to purchase. In reverse showrooming, a potential customer is exposed first to the new product online by a mention or recommendation from a friend’s social media post, often the posts include price and store location. The recommendation leads the reader to believe that their friend had done the price research for them which prompts the shopper to visit the storefront and make a similar purchase. Research found that while 41% of social media users browse online; they however made the purchases at a store. Further contributing to the growing trend, are recent changes in sales tax laws which eliminate tax savings previously available through online purchases.

Retail automobile sales are an industry uniquely suited to gain from these reverse showrooming trends. Car dealerships have been protected from showrooming behavior; because licensing, financing and insurance regulations require customers to verify proof of identity, sign legal documents and finalize title transfer at brick and mortar franchises. As a result, every internet automobile shopper essentially becomes a reverse showroom buyer.

The internet car shopping experience allows customers to gather comparative information such as fuel economy, safety and reliability ratings without facing the pressure many shoppers can perceive while visiting a dealership showroom to collect brochures and pricing. Buyer’s aversion to interpersonal confrontation may have previously limited automobile sales. In response to customer aversion to dealer showrooms, auto manufacturer websites have responded with new website tools allowing shoppers to build and price each model to exact specifications and locate a match on a dealer’s lot.

Initially many automobile dealerships cursed the arrival of the internet for providing confidential cost information to buyers, which resulted in reduced profit margins. The internet further leveled the playing field by providing buyers a new negotiation tool, email, which allowed consumers to email requests for written proposals in order to create bidding wars among many dealerships. Recently however, dealerships have adapted to this new age of self-service sales, by reducing sales staff, trimming advertising budgets and reducing inventory carrying costs.

Today many dealerships carry lower ratios of stocked inventory per unit sold then in the pre-internet era. This is now possible by capitalizing on website tools that allow customers to effectively imagine what their dream car will look like in combinations of interior and exterior colors, without the need to stock every color combination. The shopping process is further streamlined once the preferred vehicle color and equipment is selected, buyers can simply drive a similarly equipped vehicle at the dealership to test the ride and handling. Once customer selection is confirmed the dealer can transport the exact unit from storage lots within days. To further facilitate the new process, manufacturers have provided assistance to diminished profit margins with generous contributions to dealer compensation through sales quota bonuses.

Many dealerships have survived the arrival of the Web 2.0, those franchises have done so by developing finance and insurance departments that offer cost-effective services that are less effectively shopped through the internet than the car itself. Auto loans, leasing terms, insurance and service contracts have costs dependent on variables such as credit scoring and their vehicle specifics; the combination of these factors become difficult to build accurate proposals in email correspondence, and give dealerships the ability to finalize pricing after the buyer has an escalated level of commitment, which results in greater opportunity to close the deal with higher profit margins. Additionally, increased buyer commitment allows sales managers to focus on the handful of customers present to purchase rather than pinpointing serious buyers from the dozens of casual shoppers browsing from the pre-internet era.

I have watched 15 years of adaptation of the automobile sales process, and see that it would have been difficult to predict shoppers arriving with mobile devices and apps capable of locating specific cars, calculating pricing, estimating trade values and providing interest rates, based on what other buyers obtained on similar vehicles. These customer to customer comparisons are in essence the foundations for what later evolved into social media.

Today, retailers can find ways to make reverse showrooming work to their advantage by utilizing funds available from reduced advertising costs, carrying costs, and labor costs. Armed with these liberated resources retailers can reinvent themselves and create web commerce portals that serve company objectives rather than becoming the idle servants of web demand. We need to prepare a vision to enhance the Web 2.0 tools to our advantage and prepare for a future of unimagined supply chain models made possible through instant mobile spending and speedy shipping options. Survival has always required adaptation, and unlike print media, the automobile industry remains many generations away from the social extinction.

General Motors: Social Stigmas Faced By Industrial Workers

Automobile Industry, Business Management, Consumer Behavioral Research, Domestic Policy, Economics, Executive Leadership, General Motors, Human Resources, Industry Regulation, Management Research Study, , , ,

Todd Benschneider

September 16, 2012

General Motors Recovery and the Influence of Social Stigmas Faced By Industrial Workers

           The 2008 bailout of General Motors remains a focal point of economics analysts and political journalists. Today, nearly four years after its corporate collapse, reporters alternate between glowing praise and sharp criticism. However, regardless of journalistic viewpoint, one fact cannot be ignored: General Motors has clawed its way back up Fortune Magazine 2012 rankings into 5th place of America’s largest revenue corporations (Morgenson 1).

The second observation that can not be ignored is that the press and public opinion during the recovery period have focused heavily on corporate leadership and the politicians who engineered the bailout.  A crucial factor missing from the news articles: The devotion shown by designers and assemblers at General Motors who have banded together to prove that they can produce a world class product at a competitive price. The thousands of headlines during the period the followed the auto industry meltdown reflect the values with which modern Americans view industrial workers, providing recognition to white collar workers and leaving unmentioned of the achievements from the engineering and the industrial trades, this shift in values may be contributing to declines in domestic production.

Much of this anti-union and industry sentiment results from taxpayer resentment of the government rescue of the world’s largest automaker General Motors, that left the American taxpayers owning 31.9% of the common stock. Today GM rightfully wages a daily war on two fronts: normal industry competition and now the new front of public relations, under a microscope of press scrutiny and public opinion. While this scrutiny seems to have generated results with increased accountability,  as units sales climb, product ratings improve and as profitability reaches new levels. This can be seen in the 2012 employee profit sharing plans, which will provide dividends to compensate for a large portion of the pay cuts hourly employees had accepted as part of the restructuring plan. According to an article in the New York Times that for 2012 it is projected that “45,000 union workers would receive profit-sharing checks averaging $4,300, the most in the company’s history” (Morgenson 4).

However, many industry critics present pessimistic statistics possibly influenced by political agendas and an ingrained anti-industrial sentiment. In an example, an article that opens with anti-Obama critique, industry writer Louis Woodhill wrote a scathing review of GM products in the August edition of Forbes under the shocking title “General Motors is Headed for Bankruptcy—Again”. In the article Woodhill interprets a scoring aspect of recent “Car and Driver” review with:

“Not only was the 2013 Malibu (183 points) crushed by the winning 2012 Volkswagen Passat (211 points), it was soundly beaten by the 2012 Honda Accord (198 points), a 5-model-year-old design due for replacement this fall. Worst of all, the 2013 Malibu scored (and placed) lower than the 2008 Malibu would have in the same test.”

Despite a moderate share of negative press many Americans, influenced by recession and unemployment are reconsidering purchasing American industrial products in hopes that their support will result in a mutually beneficial environment for the American economy. This attitude is shared in the New York Times news article titled “General Motors 2012 Earnings: Second Quarter”, which while presenting a negative spin on GM’s European subsidiary, the article does present a positive spin on GM’s domestic operations with the paragraph:

“In its new carnation, the automaker is proving that it can be profitable at a lower sales volume. The company announced in February 2011 that it earned 4.7 billion in 2012, the most in more than a decade. It was the first profitable year since 2004 for G.M. which became publicly traded in November 2012, ending a streak of losses totaling about $90 billion” (Morgenson 1).

However recently an equal number of industry writers have taken a middle of the road stance on the American auto industry such as the CNN Money article entitled “A Recovering GM is Losing Ground at Home” which despite opening with the statistic that GM lost nearly 2% of the domestic market share in 2012, the article goes on to cite the influence of external factors by quoting auto industry economist Sean McAlinden with “Its very complex, the latest downturn isn’t from lack of sales, it is the result of GM closing down 3 million units of production facilities to improve profitability.” The article also offers hope in the second paragraph with “The Cadillac division in coming months will benefit from two key new model introductions” (Levin 1).

Economists and political journalists write about GM leadership strategies and shareholder returns but ignores those autoworkers putting in the effort day after day to prove that they can once again dominate the global automobile market.  This critical public opinion of American manufacturers and the negative stigma of industrial trades is withoutquestion the greatest obstacle of corporate moral. The resulting negative self-image among industrial workers slows the progress of American industry and that anti-industrial sentiment begins with the attitudes that modern Americans view those industrial jobs.

Over the past 150 years careers in manufacturing goods that were once viewed as hi-tech careers are perceived by many with a negative stigma. This negative connotation is fostered through the American educational system, especially seen in views of the parents of school children in manufacturing communities. The attitudes being imbedded in schoolchildren are that by studying hard and earning professional credentials that they could escape a dirty and dangerous, low paying life of industrial work. Those children later grow into consumers that believe that through hard work and achievement that they “escaped industrial servitude” with careers in medicine, science and especially education and who grow  up to resent industrial workers earning similar wages who in their eyes have not earned the right to those wages through scholastic self-improvement. What many educated professionals do not realize is that those high paying industrial jobs need to offer compensation levels that can attract reliable workers to fill jobs with much less desirable working conditions.

These anti-industrial trade values are crippling todays American manufacturing companies, especially in the automobile industry. A slow drive throught the parking lot of any white collar company such as JP Morgan here in Tampa and you can count that nearly 85% of white collar workers in non-industrial cities buy foreign produced automobiles and the  15% of the exceptions to that rule are almost exculsively those few who desired the largest of SUV’s that do not have foreign counterparts. Polling these owners for an explanation, uncovers the nearly universal response offered by import owners, is their belief that the American manufacturers produce an inferior, unreliable product. Many that offer this assumption often admit that they had never owned a new American car for comparison, and deveolped these opinions from information from the press.

The declines in American manufacturing will likely continue until society offers industrial achievement similar recognition to those contributing to the advancements in computer technology and finance professions. You can not build a championship team without being able to recruit the best engineering talents entering the workforce and you can not obtain those cream of the crop graduates to accept a job in an industry with a sinking prestige factor.

Work Cited

Levin, Doron. “A Recovering GM is Losing Ground at Home”. CNN Money. May 11, 2012

http://features.blogs.fortune.cnn.com/2012/05/11/gm-2/

Ed. Morgenson, Gretchen. “General Motors 2012 Earnings: Second Quarter”. The New York  

Times. August 2, 2012

http://topics.nytimes.com/business/companies/general_motors_corporation/index

Woodhill, Louis. “General Motors is Headed for Bankruptcy –Again” . Forbes. August 15, 2012

http://forbes.com/sites/louiswoodhill/2012/08/15/general-motors

Consumer Resistance to Superior Technology: General Motors Hybrids, Siri and Video Messaging, Why are We So Slow to Adopt?

Applied Management, Automobile Industry, Business Management, Business Model, Consumer Behavioral Research, corporate citizenship, Domestic Policy, Economics, environmental sustainability, EPA, Executive Leadership, Foreign Policy, General Motors, Human Resources, Industry Regulation, Management Research Study, Marketing Strategy, Muma College of Business, Pollution, Start-Up Ventures, Technology, Triple Bottom Line, University of South Florida, , , , , , , , , , , , , , , , , , ,

Todd Benschneider

University of South Florida
Revised 4/23/2018

When I first wrote the foundation for this article on “Consumer Resistance to General Motors Hybrid Vehicles” nearly six years ago, I was hoping to make sense of the unexpected marketing challenges that we uncovered when Americans proved surprisingly reluctant to purchase the General Motors electric and hybrid option vehicles in 2012.

The market timing of 2009-2012 seemed ideal for electric automobile technology, with record high fuel prices, deeper understandings of global warming and the inevitable decline of petroleum production in the coming century.

On the surface, it seemed to be a reasonable assumption in 2012, that industry projections for alternate fuel vehicles would become a reality and “most cars of  the future” (by 2020 was the expectation) would employ some form of electric or hybrid powertrain.

It is ironic how eight years into the future seemed limitless in its potential; but, eight years ago, feels like it was just yesterday.

How could anyone not want inexpensive clean energy cars; especially, ones that cost less than a dinosaur powered vehicle?

Few people would even argue that oil reserves could possibly sustain our current demand for gasoline for future generations.

The proposed electric car technology was reliable, those powertrains had proven their reliability for a decade of testing.

The price was certainly right, General Motors hybrid options for Buick Lacrosse and Chevrolet Malibu were priced the same as the gas versions and, as bonus, the hybrids were even more powerful and provided income tax credits.

How could that not sell like a syrup covered hot cake????

I still shake my head in amazement at how difficult it was to get rid of the hybrids we ordered in 2011 at our Buick-GMC store. Several sales managers would have probably been fired if our veteran inventory manager Sandy had not pushed back and insisted that we limit our initial order to six units rather than the twenty that I thought was a very modest forecast …. this was not her first rodeo.

Sandy probably saved my job and managed to dealer trade most of those six aged units from our inventory and I for one, learned a valuable lesson in product development: think twice before building a superior solution for customers who do not see a problem worth solving.

Since that realization I, like many in the industry, have concluded that unless government intervention mandates the phase out of petroleum powertrains, the adoption rate of electric-powered vehicles could take another two decades. Looking ahead now from 2018, I have adjusted my expectations down a few notches from back in 2012; now, I suspect that relying on the market demand alone to bring electric powertrains to full-scale adoption would be overly optimistic.

I find myself taunting the overzealous Tesla enthusiasts with history trivia that the automaker Detroit Electric nearly overtook gas automobiles in the early 1900s, selling over 13,000 electric cars that had top speed of 20 mph and a recharge range of 80 miles. A current Tesla 3 base model is rated for 220 miles of recharge range and with modern production capability has only recently surpassed 200,000 units sold. That seems like a miniscule amount of progress made across the 100 years of technology that evolved between the two.

It also seems unlikely that government intervention will mandate the phase-out of the internal combustion engine. Some assumptions could be made regarding the far-reaching economic disruptions to foreign trade markets, devastation to the economies of export countries, displaced petroleum workers, and the reallocation of every dollar generated throughout the gasoline supply chain, not to mention the economic impact to the plastics and chemical industries which rely on the waste byproducts of oil for cheap fundamental ingredients.

So, despite being a GM guy whose career was built on gas engine emissions and combustion technology, I must admit that I had been rooting for Elon Musk’s solar-powered auto revolution.  Mostly because, I hoped to avoid becoming one of those cynical old guys who fights progress, for no reason other than, maintaining a comfortable status-quo.

I am still optimistic that electric powertrains will become mainstream and that automobiles will convert to solar charged electricity before the rest of the power grid. However, I am imagining that the solar revolution will plod forward slowly for decades in a long-drawn-out guerilla war due to the lack of strong market pull for those alternative fuel vehicles while the petroleum industry survives long enough to support the codependent  plastics industry until renewable sourced manufacturing ingredients are developed.

Hopefully Tesla investors are long-range thinkers and have prepared for the long road ahead when consumer demand someday aligns with electric automobile technology. Recently Tesla’s investors had their confidence shaken when company stock prices dropped over 60% during the first week of April over a combination of news that was only slightly negative. If that bearish responsiveness is any indicator of the market, we could expect that a prolonged loss of investor confidence could snuff out the young company before they make it to the finish line.

Few people in the auto industry expect the Tesla plants to disappear or its existing cars to become obsolete. However, a sharp drop in Tesla market value will most likely lure General Motors or Toyota in to absorb the brand at a bargain price in the coming years. Unfortunately, if that happens, a Tesla surviving without Musk at the helm will probably see electric car technology being pushed to the back burner, adding several additional decades to reach full market potential.

It is times such as this that it becomes apparent that consumers (and voters) stated principals fail to correlate with their actions. This anomaly of consumer behavior manages to slow the adoption of superior technology for reasons that will remain a mystery.

My personal experience from being on the front lines, trying to persuade General Motors customers to buy the hybrid powertrain has burned this demand paradox into my view of most technological advances.

For now, we can appreciate how one man, Elon Musk, passionate about his vision for solar power has managed to get far enough to pose a serious market threat to all three economic super powers: auto manufacturing, petroleum and the global power grid. I tip my GM hat to the relentless visionary and hope he makes it to the finish line to prove the naysayers wrong.

tesla

As a matter of fact, back in 2012, I used to tell a similar story to this one about rates of technology adoption, it was my own story about the technology predictions of a decade earlier. In 2002, a full two years before Elon Musk joined Tesla, while he was busy building PayPal, I enrolled in an Automotive Technology program and was introduced to Professors suggesting that our class focus on the General Motors hybrid trucks and Chevrolet EV1 electric prototypes from the parking lot, since they would be the products in the market when we finished the program in 2005.

Not taking any credit away from the Tesla contributions, but electric and hybrid gas/electric models were well-developed by several large automakers and proven in field testing long prior to 2002. General Motors introduced the GM Impact electric car prototype in 1990 and revised it several times into the EV1 in 1996, adding the S10 EV truck in 1997, the duo sold around 1600 units from 1996 through 2002 when they were discontinued due to high replacement battery costs.

GM prepared the next generation of alternative fuel powertrains, this time using smaller batteries in combination with the standard gas engine, allowing drivers to select between gas and electric modes. The added value proposition to hybrid technology being that the hybrid optioned car could still be driven in standard gasoline mode if the customer chose not to spend the $10,000 plus to replace the batteries required for the electric mode.

In 2002, most of us in the GM world thought this hybrid technology would provide the company with the competitive edge needed to fend off the Japanese competitors in the global market. Inside GM, everyone seemed fully committed to the project and the service press even printed the repair manuals and training materials for an expected hybrid truck product release.

We were told that the first hybrids would release no later than 2005. Surprisingly though, with the exception of the quiet release of a small batch of hybrid tucks in 2005, General Motors delayed the marketing air campaign for hybrid offerings until 2009. The marketing launch failed to build the required buzz among consumers and even with $4 gas, the hybrids were seen by most as a dismal market flop. Some environmental critics claim that the marketing campaign was designed to flop with a hope of preserving GM’s previous investments in gas engine technology while also winning support of environmentally focused politicians.

Regardless of the motives of the ineffective marketing campaign, I was there when new customers came to our showrooms to test drive hybrid models, then agreed with the proposition of the revolutionary technology; but, when it came time to sign the finance contracts, the agreement fizzled out. Many of these deals fell apart in the finance office, when the customers began contemplating uncertain future repair costs, trade in values, warranty extensions and differences in insurance rates. It seemed like many feared that hybrids would be a passing fad and they could be stuck investing in a car that would have limited resale or trade in value.

In fact, from 2008 to 2018 the General Motors dealership I worked at sold around 8000 new vehicles and despite the huge bonus offered to sales staff and managers to improve sales of hybrids, the store sold a whopping total of sixteen hybrid cars in those nine years and nearly all of those were leases.

These thoughts came to mind earlier this week when having a conversation with friends about another ambitious prediction in tech news that, by 2020, over 90% of web traffic will be video rather than the text and image data of today.

Being jaded now by these types of predictions, I shared with them another related story, that just a couple of years earlier I had read a similarly optimistic prediction, that by 2020, few people would be texting and reading from their phones; instead, we would all be using Siri-like voice translators and listening to the replies of others through our cordless ear buds.

With the 2020 model year now only fifteen short months away, I realize that most of the auto manufacturing line equipment is currently tooling for that year’s production and my friends in engineering tell me that they are working from forecasts that fewer than 7% of GM vehicles sold in 2020 will be ordered with the hybrid powertrains.

With that fresh on my mind, I am sitting in the atrium lounge of the University of South Florida, surrounded by nearly a hundred of the youngest millennials and realized that they were all still texting from their phones and reading the responses. I will curb my enthusiasm for consumer technology adoption projections in the future…..  I am starting to see how old guys become so cynical

 

 

The foundation article from back in 2012, here is the research  on the state of fuel economy technology and the obstacles to adoption:

Continued Consumer Resistance to General Motors Hybrid Vehicle Technology  – November 7, 2012

EPA policies that affect the economy become front page news in an election year and the hot topic for 2012 is the Corporate Average Fuel Economy (CAFE) revisions, requiring automakers to improve average automobile fuel economy from 29 mpg to 54.5 mpg over the next 13 years. Agreements to these revised fuel efficiency standards were concessions made by automakers during the industry bailouts of 2009.

In the backlash of that federal bailout, critics have been quick to fault American manufacturers for their lack of long-term planning. However, in defense of management strategy, the automakers have for decades been doing what profitable businesses do best, responding to consumer demand (Vlasic).

The press often suggests that domestic auto sales recovery will depend on the fuel economy of the products that manufacturers can provide. These critics assume that consumers make purchase decisions using primarily math and logic; but, those of us in the auto industry experience firsthand that purchase motives are more akin to purchasing fashions or artwork. To most Americans, their car is a part of their self-image, not just a tool that converts dollars into miles traveled.

Journalists such as News-Herald’s John Lasko write articles that with opening lines such as, “With gas prices hovering near $4 a gallon, many are opting to trade in their gas-guzzlers for more fuel-efficient vehicles.” With news headlines like those, it is easy for the public to conclude that the US automakers lack of sales was due to its heavy reliance on gas guzzling models. However, those assumptions are based on popular ideas that the domestic manufacturers previously lacked the capability to produce fuel-efficient vehicles. In their defense, the simple reality remains, the automakers must make their first priority to produce those vehicles that sell well in the domestic market.

The critics overlook the 3 million Chevrolet Chevettes that were produced between 1976 and 1987 or its domestic counterparts, the Plymouth Horizon and the Ford Fiesta that provided fuel efficiency equal to most economy cars on the market today. For example, the Chevrolet Chevette was for nearly a decade, the American flagship economy car, selling millions by providing a real world fuel economy of 25 city/ 30 hwy, or with a popular diesel engine option reaching 33 city/41 hwy. The Chevette was sold with a base price, that inflation adjusts to about $11,000 in today’s dollars and consistently surpassed the fuel economy ratings of it’s main Japanese competitor, the Toyota Corolla by nearly 2 mpg for nearly a decade (fueleconomy.gov).

Compare those cost and fuel efficiency ratings to today’s most economical products available in the US, the Korean made 2013 Hyundai Accent with an MSRP of $10,665 that is rated at 29 city/39 hwy. The comparison of these cars in the context of the 25 years of technology that evolved between them should dispel assumptions that Asian economy cars have enjoyed decades of superiority in fuel economy (fueleconomy.gov). However, in the American car market, every one of those fuel sipping economy cars was discontinued in the late 1980’s when sales dried up as the pendulum of automobile fashion swung toward a return of larger and more powerful transportation, with the introduction Sport Utility vehicles and the return of V8 powered high performance sedans.

By 1990, it became increasingly unfashionable to be seen in fuel-efficient cars, American auto style entered the age of the 1993 Jeep Grand Cherokee, offering a taller ride height for a better visibility in traffic and providing the owner with a sense of safety and rugged capability. The Grand Cherokee became the benchmark to measure style popularity, marketed with an image of recreational outdoor travel and adventure rather than previous trend for economical commuter transport. These mid-sized all terrain Sport Utilities grew especially popular with female buyers in northern states, at the same time four-door 4×4 pickups became increasingly popular with young male buyers seeking that “Eddie Bauer” outdoorsy image.

Critics often ignore the strategic decisions that allocated research and development funding away from fuel economy and directed budgets to safety, performance and durability to meet the consumer demand curves. Over the past 15 years the average vehicle age alone has grown by a third to 10.8 years old with advancements in vehicle durability (USA Today). Additional progress that was made during that period to improve braking distances and implement crash avoidance technology reduced accident frequency and cut the percentage of crash fatalities in half. In an effort to appeal to consumer demands for more powerful accelerator pedals, 0-60 acceleration times have improved by over 40%. And to counter the reliability critics of the domestic cars from the 1980’s, the inflation adjusted annual maintenance costs have dropped by more than 80% (NADA.COM).

Today even after the industry collapse, American manufacturers once again dominate automobile industry technology development, General Motors again was ranked the 2011 No. 1 innovator in automotive patents by US patent board (Tuttle). However, consumer demand trends in automobiles are similar to those in fashion, with opposing trends recurring in 10-year cycles, such as style trends toward skinny jeans from bell bottoms and short carefully styled hair to today’s bushy headed natural hairstyles. Sociologists attribute 10-year style cycles to be dependent on the needs for generational self-image, as each generation makes fashion and identity statements to differentiate them from the previous generation.

Business Times writer Brad Tuttle suggests that the fuel economy trend that began in 08 will continue to gain momentum:

“A new True Car post traces the average miles-per-gallon rise among new cars sold
in the US… all of the top seven automakers posted dramatic year over year
increases in average miles per gallon. In 2011 the average new Ford got just 17.3
mpg compared with 22 mpg in February of 2012 … the rise comes primarily as a
result of Ford doubling sales of small cars such as the Fusion and Focus”
However, despite increases in economy cars sales, auto sales as a whole have risen, the demand is also increasing on 5-year-old full size SUV’s.

According to industry writer Nick Bunkley,
“Retail prices for five-year-old full size S.U.V.’s are 23 percent higher than a year ago
according to Edmunds.com, an automotive information Website. That is more than
double the average price increase of 11 percent for all five-year-old vehicles.”
One constant in the automobile industry, vehicle selection is an emotional decision more than it is an economic one. Customer buying motives first and foremost are influenced by how the vehicle makes them feel, a vehicle becomes one with the driver, it can allow them to feel bigger, more secure or more powerful. I recently encountered a perfect case that really defined the influence of self-identity on vehicle selection.

Carolyn, a 60-year-old widow and retired guidance counselor arrived at our Buick-GMC showroom in a well maintained, three-year-old, luxury four-wheel drive truck. Carolyn had gotten a letter from our used car department that high demand for trade-ins like her truck had currently driven trade-in values up thousands over the previous year. The letter encouraged her to consider upgrading soon, to take advantage of current trade in values for used 4×4’s.

The timing of the letter was perfect for Carolyn, since she had recently moved to Florida from the Midwest and no longer had the need for wintertime four-wheel drive; to further complicate matter the garage of her new condo also couldn’t accommodate the truck. She explained when she arrived, that she really wanted to reduce her fuel budget and downsize into one the new hybrid Buick Regal sedans she had been reading about in the newspapers, rated for twice the fuel economy of her truck.

Over the following week Carolyn test drove over a dozen of fuel-efficient sedans from ours and different dealerships including the Hybrid Regal that she initially planned to purchase. Despite our best efforts to persuade her to choose our last remaining hybrid, she instead opted to buy the high performance Regal T Type, performance sedan, that ironically provides an only a slight fuel economy advantage of 15% over the truck she was trading in and was priced thousands higher than the $28,000 hybrid version.

Carol admitted that when driving the cars rated highly for fuel efficiency she felt as if she had sacrificed the power that she was accustomed to and those low powered cars made her feel old and slow behind the wheel, she insisted that she “wasn’t ready to feel like an old lady toodling down the right lane, holding up traffic”. Carol’s time behind the wheel of the Regal Turbo made her feel young and put a smile on her face every time she pushed down on the accelerator pedal. For the sake of “feeling young” she was perfectly content to pay an extra $90 in monthly car payment for the high-performance engine and luxury options and disregard the $65 month in fuel savings that the hybrid version offered.

Think of the vehicle choices by comparing it to an airplane selection; imagine choosing between airplanes, where you could select a 2 seat Cessna that might make you feel like buzzing mosquito, or for another $150 a month, you could pilot the F-16 fighter jet or a Boeing 747 to work, ….to you, which of those options excites you? The difference it capability seems huge and imagine if the difference in increased fuel costs was only an additional $100 a month. The thrill of becoming something larger and more powerful and the status that comes with that ownership has an attraction beyond what can be measured in simple terms of transportation costs per mile. American buyers have consistently demonstrated that they are willing to sacrifice a larger part of their income to enjoy vehicles that provide them with excitement.

Current sedan trends are influenced by the fuel-efficient designs from Asian manufacturers, designed to handle the high taxes on Japanese gas and the shortage of open roads and parking space on the islands of Japan. Understanding the American tastes requires us to understand the differences in our driving habits and the luxuries of smooth, open roads that Americans can enjoy, foreign drivers are often limited in their ability to appreciate American tastes for size and horsepower.

However, in Australia, with road systems similar to the US, a huge market still exists for large SUV’s, trucks and big engine cars. A market that was penetrated in the 1990’s when many Japanese automakers began to design vehicles to cater to the American influenced market, with large gas guzzlers like the Nissan Armada, Toyota Sequoia and Honda Ridgeline ensured import survival during the SUV years, and most notably even those Japanese trucks and SUV’s suffer from slightly lower fuel economy ratings than the American SUV competitors.

It has been easy for the press to fault American automakers for their lack of vision in developing economy vehicles, and to blame management for not remaining competitive in fuel efficiency technology. However, despite almost a total lack of advertising dollars for large engine SUV’s, compounded by the handicaps of stale, aged-out designs and a decrease of sales incentives offered, the demand for large SUV’s is climbing back to nearly 2008 levels despite continued fuel cost nearing $4.

Over the past 30 years American consumers have voted with their wallets, fuel economy was considerably less important to them than size, safety, reliability and performance. The challenge that lies ahead is not to build smaller, less powerful cars as much as the need to direct energy-saving technology development at the powerful SUV’s and spirited sedans that consumers demand (nada.org).

Because for many Americans the automobile is more than transportation, it is a fashion decision as much as a financial decision, and many Americans have proven for decades that are perfectly willing to pay a premium to enjoy a few more smiles-per-gallon.

 

Work Cited

 

Bunkley, Nick. “As Car Owners Downsize, the Market Is Strong for Their Used S.U.V.’s.” New

York Times. 07 2012: n. page. Web. 7 Nov. 2012.

“Side By Side Economy Comparison.” fueleconomy.gov. US Environmental Protection Agency,

07 2012. Web. 7 Nov 2012.

Lasko, John. “Gas Prices Have Car Makers, Sellers, Buyers Looking at Fuel Efficiency.” The News

Herald. 30 2012: n. page. Web. 7 Nov. 2012.

. “Guidelines.” nada.com. National Automobile Dealers Association, 07 2012. Web. 7 Nov 2012.

Tuttle, Brad. “Even with $4 Gas, Few Drivers Choose Electric Cars – Or Even Hybrids.” Business

Time. 12 2012: n. page. Web. 7 Nov. 2012.

Vlasic, Bill. “U.S. Sets Higher Fuel Efficiency Standards.” New York Times. 28 2012: n. page. Web.

7 Nov. 2012.

“Our Cars are Getting Older, too: Average Age now 10.8 years.” USA Today. 01 2012: n. page.

Web. 7 Nov. 2012.

Continued Consumer Resistance to Fuel Efficency Technologies

Automobile Industry, Business Management, Consumer Behavioral Research, Domestic Policy, Economics, EPA, Executive Leadership, General Motors, Industry Regulation, Management Research Study, Style Trends, , , , , , ,

12/09/2012 EPA policies that affect the economy become front page news in an election year and the hot topic for 2012 is the Corporate Average Fuel Economy (CAFE) revisions, which automakers to improve average automobile fuel economy from 29 mpg to 54.5 mpg over the next 13 years. Agreements to these revised fuel efficiency standards were concessions made by automakers during the industry bailouts of 2009. In the backlash of that federal bailout, critics have been quick to fault American manufacturers for their lack of long term planning. However, in defense of management strategy, the automakers have for decades, simply been doing what profitable businesses do best, responding to consumer demand (Vlasic).

The press often suggests that domestic auto sales recovery will depend on the fuel economy of the products that manufacturers can provide. These critics assume that consumers make purchase decisions using primarily math and logic, those of us in the auto industry experience first hand purchase motives that are much more closely akin to the process of purchasing fashions or artwork. To most Americans, their car is a part of their self-image, not just a tool that converts dollars into miles traveled. Journalists such as News-Herald’s John Lasko write articles that with opening lines such as, “With gas prices hovering near $4 a gallon, many are opting to trade in their gas-guzzlers for more fuel-efficient vehicles.” With news headlines like those, it is easy for the public to conclude that the US automakers lack of sales was due to its heavy reliance on gas guzzling models. However, those assumptions are based on popular ideas that the domestic manufacturers previously lacked the capability to produce fuel efficient vehicles. In their defense, the simple reality remains, the automakers must make their first priority to produce those vehicles that sell well in the domestic market.

The critics overlook the 3 million Chevrolet Chevettes that were produced between 1976 and 1987 or its domestic counterparts, the Plymouth Horizon and the Ford Fiesta that provided fuel efficiency equal to most economy cars on the market today. For example, the Chevrolet Chevette was for nearly a decade, the American flagship economy car, selling millions by providing a real world fuel economy of 25 city/ 30 hwy, or with a popular diesel engine option reaching 33 city/41 hwy. The Chevette was sold with a base price, that inflation adjusts to about $11,000 in today’s dollars and consistently surpassed the fuel economy ratings of it’s main Japanese competitor, the Toyota Corolla by nearly 2 mpg for nearly a decade.

Compare those cost and fuel efficiency ratings to today’s most economical products available in the US, the Korean made 2013 Hyundai Accent with an MSRP of $10,665 that is rated at 29 city/39 hwy. The comparison of these cars in the context of the 25 years of technology that evolved between them should dispel assumptions that Asian economy cars have enjoyed decades of superiority in fuel economy (fueleconomy.gov). However, in the American car market, every one of those fuel sipping economy cars was discontinued in the late 1980’s when sales dried up as the pendulum of automobile fashion swung toward a return of larger and more powerful transportation, with the introduction Sport Utility vehicles and the return of V8 powered high performance sedans.

By 1990, it became increasingly uncool to be seen in fuel efficient cars, American auto fashion began to enter the age of the 1993 Jeep Grand Cherokee, offering a taller ride height for a better visibility in traffic and providing the owner with a sense of safety and rugged capability. The Grand Cherokee became the benchmark to measure style popularity, marketed with an image of recreational outdoor travel and adventure rather than previous trend for  economical commuter transport. These mid-sized all terrain Sport Utilities grew especially popular with female buyers in northern states, at the same time four door 4×4 pickups became increasingly popular with young male buyers seeking that “Eddie Bauer” outdoorsy image.

Critics often ignore the strategic decisions that allocated research and development funding away from fuel economy and directed budgets to safety, performance and durability to meet the consumer demand curves. Over the past 15 years the average vehicle age alone has grown by a third to 10.8 years old with advancements in vehicle durability (USA Today).  Additional progress that was made during that period to improve braking distances and implement crash avoidance technology reduced accident frequency and cut the percentage of crash fatalities in half.  In an effort to appeal to consumer demands for more powerful accelerator pedals, 0-60 acceleration times have improved by over 40%. And to counter the reliability critics of the domestic cars from the 1980’s, the inflation adjusted annual maintenance costs have dropped by more than 80% (NADA.COM).

Today even after the industry collapse, American manufacturers once again dominate automobile industry technology development, General Motors again was ranked the 2011 No. 1 innovator in automotive patents by US patent board (Tuttle). However, consumer demand trends in automobiles are similar to those in fashion, with opposing trends recurring in 10 year cycles, such as style trends toward skinny jeans from bell bottoms and short carefully styled hair to today’s bushy headed natural hairstyles. Sociologists attribute 10 year style cycles to be dependent on the needs for generational self-image, as each generation makes fashion and identity statements to differentiate them from the previous generation.

Business Times writer Brad Tuttle suggests that the fuel economy trend that began in 08 will continue to gain momentum:

“A new True Car post traces the average miles-per-gallon rise among new cars sold

in the US… all of the top seven automakers posted dramatic year over year

increases in average miles per gallon. In 2011 the average new Ford got just 17.3

mpg compared with 22 mpg in February of 2012 … the rise comes primarily as a

result of Ford doubling sales of small cars such as the Fusion and Focus”

However, despite increases in economy cars sales, auto sales as a whole have risen, the demand is also increasing on 5 year old full size SUV’s. According to industry writer Nick Bunkley,

“Retail prices for five-year-old full size S.U.V.’s are 23 percent higher than a year ago

according to Edmunds.com, an automotive information Web Site. That is more than

double the average price increase of 11 percent for all five-year-old vehicles.”

One thing is constant in the automobile industry, vehicle selection is an emotional decision more than it is an economic one. Customer buying motives first and foremost are influenced by how the vehicle makes them feel, a vehicle becomes one with the driver, it can allow them to feel bigger, more secure or more powerful.  I recently encountered a perfect case that really defined the influence of self-identity on vehicle selection.

Carolyn, a 60 year old widow and retired guidance counselor arrived at our Buick-GMC showroom in a well maintained, three year-old, luxury four wheel drive truck. Carolyn had gotten a letter from our used car department that high demand for trade-ins like her truck had currently driven trade-in values up thousands over the previous year. The letter encouraged her to consider upgrading soon, to take advantage of current trade in values for used 4×4’s.

The timing of the letter was perfect for Carolyn, since she had recently moved to Florida from the Midwest and no longer had the need for wintertime four wheel drive; to further complicate matter the garage of her new condo also couldn’t accommodate the truck. She explained when she arrived, that she really wanted to reduce her fuel budget and downsize into one the new hybrid Buick Regal sedans she had been reading about in the newspapers, rated for twice the fuel economy of her truck.

Over the following week Carolyn test drove over a dozen of fuel efficient sedans from ours and different dealerships including the Hybrid Regal that she initially planned to purchase. Despite our best efforts to persuade her to choose our last remaining hybrid, she instead opted to buy the high performance Regal T Type, performance sedan, that ironically provides a only a slight fuel economy advantage of 15% over the truck she was trading in and was priced thousands higher than the $28,000 hybrid version.

Carol admitted that when driving the cars rated highly for fuel efficiency she felt as if she had sacrificed the power that she was accustomed to and those low powered cars made her feel old and slow behind the wheel, she insisted that she “wasn’t ready to feel like an old lady toodling down the right lane, holding up traffic”. Carol’s time behind the wheel of the Regal Turbo made her feel young and put a smile on her face every time she pushed down on the accelerator pedal. For the sake of “feeling young” she was perfectly content to pay an extra $90 in monthly car payment for the high performance engine and luxury options and also disregard the $65 month in fuel savings that the hybrid version offered.

Think of the vehicle choices by comparing it to an airplane selection; imagine choosing between airplanes, where you could select a 2 seat Cessna that might make you feel like buzzing mosquito, or for another $150 a month you could pilot the F-16 fighter jet or a Boeing 747 to work, ….to you which of those options excites you?. The difference it capability seems huge and the difference in increased fuel costs may only be an additional $100 a month. The thrill of becoming something larger and more powerful and the status that comes with that ownership has an attraction beyond what can be measured in simple terms of transportation costs per mile. American buyers have consistently demonstrated that they are willing to sacrifice a larger part of their income to enjoy vehicles that provide them with excitement.

Current sedan trends are being influenced by the fuel efficient designs from Asian manufacturers that were designed to handle the high taxes on Japanese gas and the shortage of open roads on the islands of Japan. Understanding the American tastes requires us to understand the differences in our driving habits, many countries do not have the smooth open roads that American can enjoy, foreign drivers are often limted in their ability to appreciate American tastes for size and horsepower. However in Australia, which has road systems similar to the US, they have a huge market for large SUV’s, trucks and big engined cars. During the 1990’s many Japanese automakers began to design vehicles to cater to the American market, large gas guzzlers like the Nissan Armada, Toyota Sequoia and Honda Ridgeline ensured import survival during the SUV years, and most notably those Japanese trucks and SUV’s suffer from slightly lower fuel economy ratings than the American SUV competitors.

It has been easy for the press to fault American automakers for their lack of vision in developing economy vehicles, and to blame management for not remaining competitive in fuel efficiency technology. However, despite almost a total lack of advertising dollars for large engine SUV’s, compounded by the handicaps of stale aged out designs and a decrease of discounts offered on the large SUVs, the demand for large SUV’s is climbing back to nearly 2008 levels despite continued fuel cost nearing $4.

Over the past 30 years, American consumers have voted with their wallets, which indicated that fuel economy has been considerably less important than size, safety, reliability and performance. The challenges that lie ahead are not building smaller, less powerful cars as much as directing energy saving technology development at the powerful SUV’s, light trucks and spirited sedans that American consumers demand.

Because for many Americans the automobile is more than simple transportation, it is as much an entertainment and fashion decision as a financial decision, and many of those Americans have proven for decades that they are perfectly willing to pay a premium to enjoy a few more smiles-per-gallon.

Work Cited

Bunkley, Nick. “As Car Owners Downsize, the Market Is Strong for Their Used S.U.V.’s.” New

                        York Times. 07 2012: n. page. Web. 7 Nov. 2012.

“Side By Side Economy Comparison.” fueleconomy.gov. US Environmental Protection Agency,

07 2012. Web. 7 Nov 2012.

Lasko, John. “Gas Prices Have Car Makers, Sellers, Buyers Looking at Fuel Efficiency.” The News

                       Herald. 30 2012: n. page. Web. 7 Nov. 2012.

. “Guidelines.” nada.com. National Automobile Dealers Association, 07 2012. Web. 7 Nov 2012.

Tuttle, Brad. “Even with $4 Gas, Few Drivers Choose Electric Cars – Or Even Hybrids.” Business

                          Time. 12 2012: n. page. Web. 7 Nov. 2012.

Vlasic, Bill. “U.S. Sets Higher Fuel Efficiency Standards.” New York Times. 28 2012: n. page. Web.

7 Nov. 2012.

“Our Cars are Getting Older, too: Average Age now 10.8 years.” USA Today. 01 2012: n. page.

Web. 7 Nov. 2012..