Puzzles Facing the Car Industry

The Puzzles Facing the Car Industry – Oil Prices and Consumer Biases

By Martin Swig

Chevrolet Corvair WagonCar selling requires a long-term strategy. Consider Hyundai. In their first ten years in the U.S. they wandered all over the map. They then “idled” for about five years. Finally they found a sound strategy and produced a succession of very good cars. At long last they are recognized as a major producer of very desirable cars. Reputation: UP. Resale value: UP. Dealers: TOP NOTCH. Sales: SKYROCKETING. A track record like that requires a good strategy, good execution and good forecasting.

Today, we have governments demanding electric cars, consumers being primed to want them to reduce our dependence on oil. So far electrics have less than 1% of the market. But what if oil is actually plentiful, as some experts are beginning to believe. Citing huge reserves in Alberta and North Dakota, and recent discoveries in Brazil that may exceed the reserves in Saudi Arabia, these sources suggest that oil prices could decline precipitously. If that happened, demand for electrics and hybrids would likely collapse, wiping out the considerable investment in them.

Remember the Chevy Vega, Plymouth Horizon and Dodge Omni?

We’ve been there before. In the early ‘70s our not-so-wise legislators created CAFÉ (Corporate Average Fuel Economy). These regulations required that the average fuel consumption of all the producers’ cars achieve a certain average. There is a separate average for trucks. A company like GM couldn’t average its imported product with its domestically produced cars – a sop to the Auto Workers Union. The result was that U.S. companies were forced to build money losing small cars. Remember the Chevy Vega, Plymouth Horizon and Dodge Omni?

Since government couldn’t force consumers to buy them, it took big discounts to sell them. This was eventually a factor in the bankruptcies of GM and Chrysler. Will something similar happen again?

The Hard to Read Consumer

Audi Q5In 1962, my sister asked me what car her family of four should l buy. I suggested a Chevy Corvair wagon. She never asked my advice again until now. After an ownership history of Range Rover, Infiniti FX and Mercedes-Benz ML, I suggested her next car be an Audi Q5. She likes it, but isn’t quite convinced.

I told her to shop a Cadillac SRX, Ford Edge or Flex, maybe a Chrysler 300 for variety, or possibly another Mercedes-Benz or Infiniti. Her response: Japanese or German, but no American car. I pointed out that the American quality is way up, fully competitive with the competition. She was happy to know that, but Cadillac and Chrysler were OUT because she didn’t want to reward a company that accepted a bailout and bankruptcies that so obviously discriminated in favor of the UAW.

Ford will get a grudging look. She will reconsider the Infiniti and Mercedes. My guess: The Audi will win out, based on style, economy and well-earned reputation.

Interesting minefield for corporate planners in a marketplace feasting on very good cars from every manufacturer.

[Source: Martin Swig; photo credit: Audi AG; Flickr]

Show Comments (6)

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      1. They certainly do and are – but not counting the ones with limbs crushed or lopped off.
        But, of course, video cannot convey the heat and noise of this plant.

    1. There was one close-up of a left hand in the video that shows a missing forefinger.
      I believe this is the Pontiac assembly plant in Pontiac, Michigan. I started working there in 1966. I graduated to self employment (retired) nearly 41 years later. Many jobs shown were taken over by robots and computer control by then. Much safer overall thanks to the union and management working together. It is still a good company to work for.
      The main danger in the plants was in boredom working along side with machines. Guarding eliminated a lot of pinch points. We were well trained on safety.

  1. Denial of the scarcity of fossil fuels is folly–being held hostage to oil producers is an undeniable fact.  Electric cars and hybrids will rule and they will help the country get on it’s feet again.  Comparisons to old vehicles from the bad management of the Big 3 are ridiculous.  Enjoyment of classic cars and classic sportscars is great fun for leisure; the new technologies will lead the day for work and needed transportation.
    BTW, if your sister took your advice in ’62 and bought a Corvair wagon, she mucst have a SHORT memory  if she asked you again less than 50 years later!  I love Corvairs–they are part of fun and leisure. When you need transportation you need one of today’s great cars…try an Accord, a Camry, Fusion, Volt….having owned 4wd she must realize this is truly unnecessary for 98% of drivers.
    Now back to some great classics and the Mille.
    LD71 😀

  2. Right wing bias. Selective memory. It wasn’t the UAW that designed and engineered and marketed the Vega, Omnirison, and the infamous Pinto , it was the executives at GM, Ford, and Chrysler that created those poorly engineered pieces of junk. No one forced Americans to buy Japanese cars. Toyota, Nissan and Honda did not have any trouble selling and making money from small cars; in fact people were paying over sticker for them in the ’80s when Detroit was offering rebates to move their product out the door. They did not have any trouble selling cars when gas prices went down. They did not have any trouble selling cars when the exchange rate eliminated their price advantage. No, it was good old American complacency, cost cutting (and executives pocketing the difference), and acceptance of mediocrity that did in the Big 3. Your sister is equally mistaken for “not rewarding the Big 3 for taking bailouts”. She’ll instead choose an Audi based on “its well-earned reputation”? HAH! Audi’s reputation for reliability isn’t great, last time I checked! The Germans have become just as bloated and complacent as the Big 3, but at 3 times the cost! And when their day of reckoning comes, you better believe the German government will bail THEM out.