The Emerging Corporate State

I very seldom include really long excerpts from articles, but this is perhaps the most telling article I have read to really give you a feel for what the new government ownership of the automakers really means.

It sounds crazy: Just a week after the White House scolded Chrysler LLC for relying too much on gas guzzlers, the company is heading to a marquee auto show Wednesday to unveil a new SUV.

Chrysler insists the Jeep Grand Cherokee, which clocks in at 20 mpg in its two-wheel-drive version and 19 in four-wheel-drive, is a crowd favorite and a crucial part of its lineup.

"This is a very important vehicle for us. It's one of the primary legs of the Chrysler stool," Chrysler spokesman Rick Deneau said. "Customers have told us they want this vehicle and that it's the right size."...

The White House slammed Chrysler for having a product lineup so heavily weighted with trucks and SUVs. It added that the automaker does not have enough products in the pipeline to meet an expected increase in demand for small cars.

But Chrysler is standing by the Grand Cherokee. It's profitable, recognizable and the No. 2-selling vehicle in the Jeep lineup. Grand Cherokee sales fell by almost half during the first three months of the year, but its market share has remained steady, according to Autodata Corp....

Karl Brauer, editor in chief of the automotive Web site Edmunds.com, said it may be hard for Chrysler to please both the government, which is demanding greater fuel efficiency from the Big Three, and its customers, many of whom still demand big cars.

"It would be far more foolish for Chrysler to abandon its core competencies in the Jeep brand lineup than it is to come out with a new" Grand Cherokee, Brauer said.

I hardly know where to start with this.  Some thoughts:

  • As expected, the administration does not really care about the near-term recovery of GM and Chrysler, or, if they care, they are totally ignorant as to the realities of the US car market and the sources of Chrysler's profitability.   They care about enforcing a particular political agenda that has little to do with, and may actually conflict with, the health of the company.
  • We have hit a new low when the President of the United States has a strong opinion on and reaction to what car a private company chooses to feature at an auto show.
  • We REALLY have hit a new low when my newspaper thinks its "crazy" that a private company would follow its own marketing intuition rather than the dictates of the US President as to what car they should feature at an auto show.  The AZ Republic just assumes the company should do whatever Obama tells them to.
  • "Expected increase in demand for small cars"  -- Expected, by whom?  Hybrids are currently losing market share.
  • It takes years to develop a new car, so this particular variation of the Cherokee has been in the pipeline for a while, and millions of dollars have likely been invested in it.  And the product line makes money, unlike many other Chrysler cars.  But the Administration wants them NOT to sell it?  It takes years to change a company's auto portfolio, but Obama is going to throw a hissy fit because they have not done it in two months?  Don't they know who he is?
  • The article even gives the data one needs to understand why buyers don't share Obama's need to downsize their car.  Based on numbers in the article, this SUV uses $235 more gas a year than the Camry (which I guess is a more politically correct car choice).  That is $19.60 a month.  Assuming a car payment of $450 per month, that is about 4% of the car payment.  In other words, the difference in gas use is a TRIVIAL expense for the person who can afford to buy the car in the first place.  Over 5 years, the cumulative extra gas to fuel the SUV costs about the same as the 16" alloy wheel option on the Camry.

Every day, I have an increasing sense that we are creating a dictatorship run by a grad school public policy seminar.

I am sure that Obama really believes, in his heart, that Americans really want smaller cars rather than SUVs.  So what?  By acting on his own preferences, he is breaking what I call marketing rule #1:  Never assume ones own personal preferences are shared by the marketplace.

I wrote the following in the comments to this post where a good Bay Area greenie had expressed similar views (that automakers are hurting because they are producing the wrong cars that Americans don't want):

I have been a marketer all my life. As such, one of the first rules of survival I learned was to never overlay my own personal preferences on the marketplace. GM has had this problem for years, with insular design teams locked in some weird 1970s design world.

But you and others are simply repeating the mistake, with a different set of perspectives -- you assume your personal preferences in cars represent that of the majority of buyers, and you wish to use the fiat power of government to enforce those preferences. It is a recipe for fiscal disaster. I promise you what people buy, for example, in rural Arizona is not the same thing that people buy in SF, no matter how much those on the coasts want to forget that flyover country exists.

I actually think there is decent evidence that a lot of people do want what GM is offering, given their market share. Why do people always say they make cars that no one wants to buy, when they sell 10 million of them each year? I will confess the GM product line does nothing for me, but so what? Others seem to like it, and, unlike many, I don't look down my nose at them for doing so.

The problem is not necessarily their product line, but their cost position. The average price of new cars has not risen for 15 years. Much like in computers, consumers now expect ever better cars for the same or lower price each year. GM is still producing cars with a mindset built in an era of a three-company domestic monopoly, where 4% annual price increases were routine. Their competition is producing like they are Dell or Toshiba, recognizing that they are never going to get price increases and ruthlessly driving down costs.

Update: This is relevent, even if not directed specifically at autos:

Er, industry also knew how to make low-flow toilets, which is why every toilet in my recently renovated rental house clogs at least once a week.  They knew how to make more energy efficient dryers, which is why even on high, I have to run every load through the dryer in said house twice.  And they knew how to make inexpensive compact flourescent bulbs, which is why my head hurts from the glare emitting from my bedroom lamp.    They also knew how to make asthma inhalers without CFCs, which is why I am hoarding old albuterol inhalers that, unlike the new ones, a) significantly improve my breathing and b) do not make me gag.  Etc.

In fact, when I look back at almost every "environmentally friendly" alternative product I've seen being widely touted as a cost-free way to lower our footprint, held back only by the indecent vermin at "industry" who don't care about the environment, I notice a common theme: the replacement good has really really sucked compared to the old, inefficient version.  In some cases, the problem could be overcome by buying a top-of-the-line model that costs, at the very least, several times what the basic models do.  In other cases, as with my asthma inhalers, we were just stuck.

Often "industry reluctance" to offer green products is actually industry understanding of customer reluctance to buy them.

  • Charlie B

    A Toyota Camry is NOT politically correct.

  • the other coyote

    Dodge makes the best diesel truck on the market. We have a 2005 Dodge 3500, Cummins diesel, dual rear wheels (but not 4wd - we liked the ride on the 2wd better), and get 21 mpg empty. We get 14 mpg pulling 22,000 pounds of hay, going 75, running the AC.

    Screw hybrids. I can't haul cattle to market, horses to horse shows, or hay to my ranch in them. But that doesn't seem to matter to lefties... I guess they have decided I shouldn't have any of those things (cattle, hay, horses).

  • Mark

    Just more of the same from people who have never held a real job. The entire roster of the Democratic party is filled with them.

  • DrTorch

    I think your update really nails it. These "greener" products like dishwasher detergents (see the State of Washington's new restrictions), don't work as well.(Yeah, my clothes dryer puts out damp clothes too, only in AZ I used a clothes line!)

    So once again, there will be unintended consequences...greater environmental impact from packaging and shipping greater quantities of inferior soap, longer drier times, etc, and while costs go up for consumers, all the alleged problems remain.

    That's called "job security" for the politicians and regulators behind all this.

  • TakeFive

    I always shake my head when I hear this nonsense from the government (Democrats, that is) about building the cars people want.

    I take my kids to soccer practice. The parking lots are JAMMED with SUVs. I live near a very large girls softball field. The streets are JAMMED with SUVs. I work near a big little league field... you get the idea.

    So none of these folks really wanted these vehicles?

  • A.Flood

    "Every day, I have an increasing sense that we are creating a dictatorship run by a grad school public policy seminar."

    I second that.