Autoextremist: The Kings of Short-Term Thinking...

[Variance]

Link: http://autoextremist.com/page2.shtml#Rant

The Kings of Short-Term Thinking Get Caught Flat-Footed - Yet Again.

Detroit. The horrific, gut-wrenching scenes from the Deep South are grim and never-ending, and our hearts go out to everyone in the region, with the scope of the devastation and desperation impossible to comprehend. The effects from Katrina will be felt across this nation for years to come. But beyond the human toll and destruction brought on by the hurricane, we are now experiencing a furious storm of another kind that will cause a fundamental shift in the way the American driving public approaches vehicle purchase decisions and, in turn, a fundamental shift in the U.S. auto industry - literally overnight.

We've seen countless reports over the years estimating the price gasoline would have to reach before people reconsidered their vehicle purchase decisions - and the recurring figure always seemed to come in at around $3.25 per gallon. But in most areas of the country now the price for a gallon of gas has blown right by that figure. Certain analysts in and around the auto industry still suggest that this spike will be temporary and that it won't have a long-term effect on the driving public's vehicle consideration parameters.

But I'm not buying that perspective for a second.

Too few people remember the gas crisis of 1973, other than the old news footage clips, but this time, with the oppressive coverage by the media of events as they unfold, along with the instantaneous connection offered by the Internet and the fact that gas stations across the U.S. are raising prices almost daily, the message is being received loud and clear by everyone. And the message resonating with the driving public is that the era of cheap fuel is well and truly over in this country. Combine the global impact of energy usage around the world as developing nations demand more and more energy with the effects of the worst natural disaster in U.S. history, and you can almost hear the unified cry of people as they drive around, saying, "Okay, we get it now!"

Whether or not you believe this shift is long overdue (I certainly do), this will be no temporary revelation on these drivers' parts, either. After gorging on faddish, oversized SUVs for years, while studiously avoiding more rational vehicle choices, drivers in this country have woken up with a relentless hangover from Katrina made up of the double-whammy of tight supplies and jaw-dropping prices. This isn't some speculative doomsday scenario in the Op-Ed pages of The Wall Street Journal either - instead this is real-time, day-in and day-out reality for the American driving public, and it's hitting them in the head like a two by four.

Forget the "I told you so's" for a moment and consider what effect this is going to have on the U.S. auto industry. The short answer can be encapsulated into two words - not good. SUV sales aren't just slowing - they're crashing to a halt. And the auto industry, especially here in Detroit, is reeling.

My gut tells me that fully 50 percent of the full-size SUVs sold in this country in the last five years were purchased by people who had no real need for them and had no business buying them. So, you can take those people right off the table, because after dealing with the new gasoline cost reality in this country for a few months, they simply won't be back. Of the SUV buyers left, I would estimate that 25 percent of those have already made the decision that $200 per week fuel bills are simply unacceptable, under any circumstances, so they won't be back either. That leaves the market for full-size SUVs in this country in my estimation at 25 percent of what it once was - with only the people who actually need these types of vehicles or those who can afford to ignore $125 dollar fill-ups left to have their pick of the full-size SUVs in the market.

Why could just about everyone with a passing interest in this business see this scenario playing out except for the denizens of the Motor City and the other automakers around the globe who decided that there was no end to the artificially-induced SUV craze? Artificially induced you ask? That's exactly what it was. Although there are several current high-ranking auto executives walking around today who will sit there and tell you with a straight face that Detroit and other manufacturers were just "giving the people what they wanted."

That is flat-out unmitigated bullshit.

Detroit marketers in particular created "the need" and "the want" here, folks - and don't for a minute be misled into thinking otherwise. Detroit single-handedly pushed an egregiously callous marketing strategy that revolved around launching more and more variations of larger SUVs into this market and creating the demand for vehicles that were a dismal combination of laughable space utilization, miserable handling dynamics and piss-poor fuel economy - wasteful mastodons that made little sense even under the most wildly optimistic scenarios. Not only did they push bigger and bigger SUVs and "urbanized" pickup trucks, they made these vehicles drive like cars so that people would realistically consider them as benign alternatives for their transportation needs - even if they were woefully inappropriate choices in every respect. And while these vehicles generated mind-numbingly huge short-term profits, Detroit ignored warning after warning, while adding more SUV models and the plants to build them, thinking the big-time profits and cheap gas would last forever, even though certain high-visibility individuals at these companies with a modicum of vision and rational thinking had long advocated that the whole SUV craze may indeed be a short-term boon - and a long-term disaster in the making.

Today, that disastrous scenario has become reality.

And the auto industry and Detroit in particular have no one to blame but themselves. They turned what should have remained a small but serviceable niche in the market into the cornerstone that they banked their livelihoods on - and now the whole thing has come crashing down on them.

Don't be surprised if these automakers can't engender much sympathy at this point for their plight, either. Once again, industry critics - from Washington, D.C., and the media intelligentsia in the Northeast, to the green movement on the West Coast - have been given carte blanche to tee-off on Detroit for all manner of sins, and Detroit will not be able to mount even the feeblest of defenses. The ship has sailed on this discussion - and the finger pointing will be going only one way.

Ironic in all of this is that you can bet Toyota will escape the critical firestorm aimed at Detroit, even though the Japanese giant not only has a wide array of gas-swilling SUVs wearing Toyota and Lexus nameplates - they're about to open a huge new plant outside of San Antonio to build a bigger and better full-size pickup for the North American market. Toyota will emerge unscathed from the anti-Detroit, anti-SUV media carnage, and the Teflon bunch will escape the ire of the critics yet again - due to the fact that the "Master Manipulators" at Toyota PR have managed to convince everyone in the free world that they're the Jolly Green car company that makes nothing but hybrids that run on a magical combination of fresh air, hugs and a smile.

What happens next?

This fall's automobile market will be grim, perhaps the grimmest in U.S. history. Car companies will obviously be scrambling to muster new vehicles to market that aren't SUVs (see "On the Table" - ed.) - and they will desperately try to make a go of it while unsold SUVs become permanent fixtures on dealer lots across the country.

It certainly didn't have to be this way, of course, but after all of the hand-wringing and analysis Detroit has proven yet again that a lack of vision, creativity and conviction will absolutely kill you in this business - and nowhere is that demonstrated more on a daily basis than right here in the Motor City. Drunk on the astounding profits generated from SUVs and blithely conducting themselves as if the end of the good time party would never come - the kings of short-term thinking have been caught out on the wrong side of the market yet again.

Thanks for listening, see you next Wednesday.

[Cory Wolfe]

Okay... It's not Detriot's fault that people bought the SUVs, now is it? The public determines the popularity. People wanted SUVs, so Detriot gave them to those people. You can't blame them for making what people wanted. It's like criticizing Toyota or Honda for making midsize sedans... :rolleyes:

[ehaase]

The automakers have lots of roomy, relatively efficient alternatives to SUV's coming out over the next few years (Lambda, Edge, the new little Jeeps, the new Thetas, etc.), so I think DeLorenzo is being too hard on them.

[balthazar]

>>"Once again, industry critics - from Washington, D.C., and the media intelligentsia in the Northeast, to the green movement on the West Coast - have been given carte blanche to tee-off on Detroit for all manner of sins..."<<

You (Duhlorenzo) greatly overemphasis your & your industry's self importance. Again. Do a little research for a change, lay off the Cliche Handbook and the Sterotype Manual, and make even a half-hearted effort to matter and perhaps your blither will hold a few precious ounces of water.

>>"the kings of short-term thinking have been caught out on the wrong side of the market yet again."<<
Someone please link me to Dulorenzo's article blasting the asian automakers for being "caught out on the wrong side of the market yet again" in that they missed out on the truck & SUV segment for --what?-- 30 years?? Who stands more to lose in a deflating truck market, those manufacturers building new plants and new segment entries, pushed hard with millions of advertising dollars, or those manufacturers who have already raised the truck benchmark, have fully-amortizied factorys & engineering, who have turned their focus to cars & crossovers? Duh.

[El Scorcho]

Someone please link me to Dulorenzo's article blasting the asian automakers for being "caught out on the wrong side of the market yet again" in that they missed out on the truck & SUV segment for --what?-- 30 years?? Who stands more to lose in a deflating truck market, those manufacturers building new plants and new segment entries, pushed hard with millions of advertising dollars, or those manufacturers who have already raised the truck benchmark, have fully-amortizied factorys & engineering, who have turned their focus to cars & crossovers? Duh.

[post="11039"]<{POST_SNAPBACK}>[/post]

Wow, didn't even think of it like that. I tend to take DeLorenzo's articles as near-Gospel, but that point alone will make me look at his stuff with a more critical eye next time. Thanks.

[ftmjohn]

You guy have to agree on one thing he said, the fact that alot of buyers of SUV's did not need them at all, and are now caught in deep shit. John

[Robert Hall]

You guy have to agree on one thing he said, the fact that alot of buyers of SUV's did not need them at all, and are now caught in deep shit.

John

[post="24188"]<{POST_SNAPBACK}>[/post]

Yes...a lot of car buyers chose poorly and now are stuck with depreciating gas hogs... Edited October 5, 2005 by moltar

[CARBIZ]

The Canadian market has long ago reflected the reality of higher gas prices because we have been paying over $3 a gallon for a very long time. The Tahoes and Suburbans don't have the same market penetration here that they do south of the border. I think GM has reacted quite well to the market. Witness the Aveo, Optra, HHR, Equinox, etc. All are well positioned to handle the gas shock. The Malibu and IMpala get great gas mileage for their size and power.

[BrewSwillis]

People have large trucks and SUVs because they might sometimes need them. It's not economical to own more than one vehicle because of rediculous insurance rates, so people just have one vehicle that is big in case they need it to be. We are in the land where everything is big. It's seems to be best to have the room/towing capability and not need it, then to need the room/towing capability and not have it. I would love to have a midsize truck that I could leave in the garage for when I needed it, and then have a small roadster for daily driving, pleasure driving, runnig errands, etc.. But that is just not practical for me. So I split the difference and got a V6 Chrysler 300. I can borrow my sister's Durango if I need to tow something. I don't think Detroit forced people into trucks and SUVs, but the didn't discourge it. Why would they.....they can make higher profits on these expensive vehicles? Guys started buying trucks because they could still get RWD and V8's becasue of lower CAFE restrictions on trucks, and then the rest of the population followed suit. Trucks were even pretty cheap until the demand went up like crazy.

[bowtie_dude]

Auto extremist has been on a downward spiral as of late. I think he's got a bit chrome H up his ass.

[prinzSD]

Wow, didn't even think of it like that. I tend to take DeLorenzo's articles as near-Gospel, but that point alone will make me look at his stuff with a more critical eye next time. Thanks.

[post="11545"]<{POST_SNAPBACK}>[/post]

Well spoken and I too never looked at it that way either.