Models Come and Go; With Them Go Profits

In a manner similar to models like the Chevrolet Camaro and Pontiac Firebird, Detroit s fortunes appear destined to come and go. Throughout the 90s, the Big Three boasted that they had found the answer to avoid the cyclical nature of the auto industry that characterized it through most of the 20th century as a boom or bust business. Higher productivity, global marketing, integrated platforms, modular design and production were aimed at eliminating the cyclical nature of the business and place all of the industry s participants on an even keel, a growth keel at that.

But like the great success of the Chevy Camaro and Pontiac Firebird, both of which appear destined for the scrap yard despite their more than three decades of success, the US auto industry is in a similar state of economic uncertainty at best, and economic panic at worst.

The peculiar aspect of the current rash of plant closings, layoffs, and restructuring is that the US auto industry will sell between 15 and 16 million vehicles this year. Not a bad number, really. However, this level of sales is not high enough to cover the investment in new technology being made by car makers and their suppliers. In good times, this high level of investment makes US car makers look good when compared to their European or Japanese counterparts. But when sales falter, the panic to divest, slash programs, and cut expenses takes on maniacal proportions that affects an industry that represents nearly 20% of US GDP.

Interestingly, it may be the auto industry itself that brought on this latest slump in car sales. High interest rates in the last half of 2000 could have had an affect. But interest rates are back down, incentives are greater than they have been in the last five years, and still buyers are not flocking to the showrooms. Perhaps the greater stigma to car buying was the rash of recalls that characterized 2000, along with the reports of SUVs rolling over, tires failing and generally a malaise that tarnishes the quality image automakers have tried so hard to project over the last decade.

Perhaps the problem is that automakers are trying to do too much, too quickly. Quality is an attribute that comes, at least to some extent, from experience. In the last few years, automakers have moved very quickly to adopt new technology and develop and introduce new models, more than ever before. Perhaps in doing so, automakers lost sight of some of the basics. A case in point, once again, is the Camaro and Firebird. There has not been an official announcement from GM, but there is no doubt about their demise. GM has spent no money to market or promote sales of either vehicle. In addition, there has been no further development in their design, this despite the many years of success the models have had and the high consumer regard for their names. GM has said many times over it wants to appeal to a younger buyer, yet it is tossing the very marques that clearly appeal to younger buyers. On the racing side, both the Camaro and Firebird are still raced by privateers in Trans Am and other types of sports car racing, providing GM with a performance image that doesn't cost it a dime. The problem is that the cars are not new.

One final insight into the current slowdown in auto sales in the US is the advantage it provides foreign competitors. With the dramatic cutbacks being made in employees and development programs, many technologies that were pioneered in Detroit are now on the shelf waiting for more expedient times for continued development and commercialization. While this technology collects dust in Detroit, foreign manufacturers are given the opportunity to catch up and in some cases even surpass the Big Three in introducing technology that improves safety, comfort or performance in cars.

After all is said and done, it appears that the cyclical nature of the auto industry remains with Detroit and the Big Three. They will weather through it and when sales pickup the cycle will begin all over again.