Do you buy the numbers? - As I See It - auto industry and the recession - Brief Article

Automotive Industries,  April, 2002  by Andrew Cummins

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North American sales of light trucks and passenger cars have been outstanding for the past two years. And 2002 is starting out even better. Sales through February were nearly 175,000 units above the same period last year.

More good news: Federal Reserve Chairman Alan Greenspan reports the recession has bottomed-out. We are now in recovery, he proclaims, although he's concerned that too rapid a rebound might force a rise in interest rates, to slow things down. Frankly, I could live with a little inflation right about now if it means getting the economy hummin' again.

What really happened during the past year? The automotive industry had been looking for the downturn ever since the last one. We all had a game plan for when it came. So we got out the playbook and quarterbacked our companies into the worst automotive recession in a decade.

My point is, if you buy the numbers then you stand scratching your head asking what happened. Sure, this industry is actually in a recession, but we're still building and selling vehicles -- lots of them. The problem is in inventory and overcapacity. These two factors are costing OEMs, suppliers and consumers millions of bucks a year.

However, everybody is scared to stop the machine, retool the process, and move forward in an orderly fashion with volumes that can be sustained without the overcapacity.

The industry will come out of this recession much stronger than it was going in. But have we learned a lesson? Will we begin the process -- and make the same mistakes -- all over again by expanding our companies beyond our ability to manage? If we can't make money selling over 17 million vehicles, how will we make money selling fewer of them?

If you buy the first two months' numbers, the North American industry is at an 18-million-plus run rate for 2002. Of course, that pace won't continue through the year. But why does this industry see the glass half empty? Because that's what it's always seen. When I was working in Ford product development communications in 1995, it seemed that every meeting centered around how Ford would survive the pending industry downturn, whenever it was coming. What a waste of time.

There's no silver bullet for ending the cyclicality of the auto business. Instead, many tools, processes and a new way of thinking are necessary to solve a very complex structural problem.

Online purchasing exchanges such as Covisint are one piece of the solution. Nearly two years ago former GM purchasing czar Harold Cutner turned me on to the potential of Covisint, before most people even knew how to pronounce it. Helping to shorten the order-to-delivery time to only a few days creates a build-to-order industry and can help reduce cycle times.

At the delivery end of the business, the industry must reeducate the customer. Right now he or she is buying the "one-day car" right off the lot. But in doing so, he or she often doesn't get the exact vehicle they want. Buyers instead are often driving off with equipment or interior trim or even a paint color that they don't really want.

Dealer lots full of potential "one-day" cars don't solve the ongoing inventory or overcapacity problems, either.

I only buy the numbers because these are the production runs that are being shoved down dealers' throats. We need to revamp the entire system of how we plan, build and deliver new vehicles.

What do you think? E-mail me at acummins@randallpub.com.

Andrew Cummins is Publisher/Editorial Director of Automotive Industries.

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