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Automotive Industry

Surviving a downturn - Editorial - automobile industry faces economic downturn

Automotive Industries, Oct, 2002 by Gerry Kobe

Japan's decade-long economic slide has dealt its industries a harsh blow and that includes its automakers. Domestic Japanese vehicle sales are dawn and the prognosis for a big turnaround is not eminent. Across the Pacific, America's fledgling economic crisis is impacting its auto and truck sales as well. Many of the last year's vehicle transactions were for second or third vehicles within a household. But the reality of this year's continued sluggish economy is causing consumers to "tap the brakes" with regard to that kind of discretionary spending.

From a government standpoint, both countries have reacted to their plight in similar fashion by slashing interest rates to stimulate the economy. But in the case of each country's respective automakers, the approaches are worlds apart.

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American automakers to this point have managed to stem the sales slide by offering obscenely seductive rebates or no-cost financing on most of their vehicles. As we all know GM kicked off the zero percent idea as a post-September 11, 2001, stimulus to the economy. Personally I have some serious doubts that GM's program was quite as selfless as it has been portrayed; while feedback from within GM's ranks makes me further believe that the plan was discussed long before last year's acts of terrorism.

But for now I'll take it at face value; it doesn't matter. The bottom line is that zero percent financing or a trunk full of rebate money has been the solitary solution for America's slowing vehicle sales. Keep the product the same and cut the price.

In contrast, Japan's automakers take a different approach to boosting demand in their domestic market as well as the global markets that they serve. Instead of taking the margins out of the car, Japanese OEMs tend to add technology, expand into new segments or find ways of rethinking vehicle systems to make them cheaper. In other words, they capitalize on adversity rather than buy their way out of it.

Nissan, for example, is testing a new theft-deterrent system for its vehicles that adds virtually no cost. By simply giving the driver's seat longer forward travel, Nissan is able to lock the front seat tight against the steering wheel, making the car impossible to drive, It may not be a technological match for some of the other systems out there but it gets the job done.

Honda also takes the "high value" approach by adding features that broaden appeal but at minimum cost to the automaker. On its hot-selling Fit subcompact, Honda is introducing a new version of its Multimatic S transmission. The new unit can operate as a conventional CVT, a seven-speed automatic or a seven-speed manual transmission. Again, investment is low since it's mostly software, but customers are already lining up.

There are similar examples in Japan for every automaker from Toyota to Daihatsu, but the message here is not so much the technology as it is the philosophy. When the market slows down, Japanese companies put money into the product where it will ultimately come back to them. In contrast, American companies put money into their customer's pockets where it vanishes. Then when the market finally does come back, U.S. companies inevitably find that they have lost market share to Japanese automakers.

The important side benefit of Japan's approach is that it gives automotive suppliers an expanded role during dips in auto sales, By contracting suppliers to come up with new ideas, OEMs can tide a supplier over until sales come back, And in the true sense of a partnership that has shared and beaten adversity, the favor is not forgotten by suppliers when it comes to pricing, service and sharing the latest technology.

Undoubtedly, my observations will once again agitate a few people who will tell me that I should get behind U.S. automakers instead of criticizing them. But that's my point. I am behind them and I'm tired of watching them lose share in every downturn. Regrettably, I see it happening again but I know it doesn't have to.

GERRY KOBE is Executive Director of Automotive Industries.

Automotive Industry

Surviving a downturn - Editorial - automobile industry faces economic downturn

Automotive Industries, Oct, 2002 by Gerry Kobe

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