Bust & Boom, Part I (The Auto Industry)

by Jonathan Salem Baskin on 5 March, 2012 - 23:01

The U.S. auto industry is heading for a banner year...so much so that there’s a question whether manufacturers will be able to keep up with demand, especially for trucks. Tens of thousands of people are being put back to work at auto plants and parts suppliers, not to mention the additional work available from everyone involved in the activities (from transportation to coffee shops along the way).

This is inarguably great news for America, but it’s also a movie we’ve seen before, isn’t it?

Fast forward a few years and the likely story will be about bust again, not boom. The car makers will get greedy, seeing all the consumer demand as opportunities to add extras to vehicles so they can charge more for them. Fuel efficiency will fade as a purchase motivator just as the efficiency averages for the most popular vehicles will decline. Then OPEC will get greedy, or there’ll be war in the Middle East, so gas prices will skyrocket. All those auto loans will start looking onerous as the resale value of vehicles plummets again, forcing many people to sell anyway to minimize losses (and flooding the market with more vehicles, thereby reducing prices further). Plants will slow or shut down entirely.

And all those workers will be required to take pay cuts, put on furlough, or fired outright.

Whether events play out exactly as I’ve described doesn’t matter; you have to be a fool not to acknowledge that there’s a cyclical ebb-and-flow to the auto industry, and that it tends to gyrate rather wildly between boom and bust times.

So isn’t it a little weird that nobody is talking about what to do about better managing it?

It’s as if busts and booms were a fact of life or nature, which they’re not. Capitalism tolerates them as imperfections of time and the transparency of information, and the mechanism of the marketplace is intended to correct them. No brand benefits from the boom times enough to happily endure the busts...actually, far from it. Car brands seem to exist at the whim of external forces beyond their understanding or control. What we consumers think about the auto industry is dependent on how we feel about the country and our economy, not what the brands tell us.

This situation is a bit weird considering the automakers spend billions of dollars marketing to us each year. They’re just telling us very little that’s relevant to the Bigger Picture.

While I believe in the awe-inspiring power of marketers, I know that we can’t change the basic rules that drive the global economy. But I do think automakers could fiddle with the way they communicate to the marketplace to help lessen the crazy ups and downs in the business of selling cars. Here are a few thought-starter ideas:

• Stop catering to purchase driving weaknesses, and have the guts to promote strengths. Playing to fantasies of power and sex is the tried-and-true approach of car marketing, only it has no bearing on customer loyalty or sales consistency. It’s glorified impulse buying if you think about it….all those huge SUV purchasers felt like mini-Arnolds when they bought their land yachts, but then were left with those heavy hunks of metal hanging around their necks once the tone of the marketplace changed. What if car marketing helped people identify and hold onto better reasons for buying vehicles? I don’t know what they are (though fuel efficiency is probably a good bet for one), but helping them avoid feeling stupid once the boom turns to a bust might be a good goal?

• Change how people finance & own vehicles. I think this is a biggie. The entire cosmos has shifted on its axis yet people still buy cars the same way they did in the 1950s: You borrow money and pay down the debt until you’re left with ownership of a depreciated asset. Your relationship with the car brand is channeled through that device you’ve bought, and when it comes time to buy another vehicle you have to not only go through the same financial process again but figure out how to unload what you’ve got. There’s got to be a better way, and leasing isn’t it. What if car brands operated like mutual funds and people could buy “shares” in them? Different amounts would qualify for different vehicles and trade-in deals (as well as service support). Maybe there’s even be a secondary market in car brand ownership. The public stock model is 200+ years old (at least in its present form).

• Broaden the definition of brand to include more products & services, so there’s a Cadillac Way of ownership that involves anything and everything, from ISPs to shoe brands. Construct integrated offerings so that consumers can buy into a true lifestyle, not just a car that suggests one. So if I am a Ford hybrid guy why don’t I get a green products discount card at Wal-Mart, a hemp clothing coupon every three months for ResponsibleProducts.com, and special offers for environmental vacations (for instance)? Why couldn’t people buy into loyalty programs for broader themes (women’s empowerment, entrepreneurship) that allowed them to accrue points against a variety of products and services offered to like-minded people? The car would be the focal point of the relationship but the day-to-day involvement would be far more robust.

Even if my ideas aren’t the right ones, you’d think we’d be seeing something different coming from the car marketers these days (other than nonsense social media campaigns). If they don’t embrace a rethink of their approach, I suspect they’re doomed to ride the boom until it crashes into the bust. Again.

And again, and again.

Original Post: http://www.dimbulb.net/my_weblog/2012/03/bust-boom-part-i-the-auto-industry.html