Wednesday, June 4, 2008

The decline and fall of the SUV empire

With the recent decision by GM to close several of its auto manufacturing plants, including the one in Janesville, there has been much talk about what brought this on and how it might have been avoided.

My thoughts on the matter are that GM should have begun switching over to a heavier focus on more fuel-efficient vehicles a long time ago, but I don't know enough about how the auto industry works to back that up with any solid numbers. However, I think it's fair to point out the success of companies like Toyota and Honda, who've been building hybrids and other efficient cars for awhile now, as evidence that it wasn't impossible to gaze into the future and see what was coming.

Record-high gas prices, increasing concern about climate change, instability in the oil markets, etc.

What's especially interesting about GM's recent announcement, then, is that they seem to finally be pondering the idea of cutting back on the production of SUVs and heavy trucks. They're even thinking that maybe they'll discontinue the Hummer line entirely. But just maybe. Can't quite kick the habit even when it's killing them, I guess.

Of course, some folks don't seem entirely convinced that this shift away from SUVs does or should have anything to do with skyrocketing fuel costs and changing consumer demands. Oh no, it's because we don't have as many children to pack into them. That's Dad29 for you, always good for a chuckle.

The facts speak of a slightly different reality, though:

According to the Federal Interagency Forum on Child and Family Statistics (America's Children in Brief: Key National Indicators of Well-Being, 2004, Washington, DC, 2004, http://childstats.gov/ac2004/tables [accessed August 24, 2004]), in 2002 72.9 million children younger than the age of eighteen lived in the United States. This number is expected to increase to 80.3 million in 2020. However, because the country's entire population will increase, the percentage of children in the population will actually remain fairly steady, decreasing slightly from 25% in 2002 to 24% by 2020.
So that theory doesn't really pan out. I'll give credit where credit is due, however, and say that Dad29 is right when he notes that "there are many folks who purchased SUVs who simply did not need them, but liked the size, or weight, or the ability to see over the traffic which SUVs provided. But that need was a lot more fragile than the need to buy food rather than fuel."

It's possible, too, to drive a vehicle that fits several passengers and/or goods, that gets decent mileage, and isn't an absolute tank. The options may be slightly more limited, but you can blame manufacturers and regulators for failing to keep up with and enforce CAFE standards, as well as the relative lack of will to research and develop cleaner technologies like hybrid engines. Consumers aren't blame-free either. Our sense of entitlement to anything and everything we think we want or need has and will continue to bite us in the ass on a fairly regular basis.

In the end, it's always the workers paying the heaviest price for a corporation's failure to evolve and adapt. Now the community is left to find ways to employ those put out of work by plant closures, and to continue to push for technologies and policies that actually benefit them, instead of costing $4 a gallon. Relying solely on companies to change their ways of their own accord doesn't seem to do the trick.

10 comments:

John A said...

My rather callous take on this is that "you reap what you sow." As you've pointed out, Toyota and Honda had the foresight to get into the low-emmissions, low MPG market well before (and with more gusto) than their American counterparts. Detroit decided that their niche would be luxury rather than economy and dived whole hog into that market. They didn't adequately diversify, and it's killing them.

It sucks that the Janesville folks are out of work. But GM wrote that plant's obituary a long time ago.

There's a lot of blame to go around, from the regulators and politicians who didn't ratchet up CAFE, to the consumers' fickle relationship with oil prices, to the company's own laziness in not innovating or diversifying. Hell, even if you blame people for not breeding enough, it's not like GM doesn't have market researchers who didn't know that. It takes 20 years for kids to leave the nest, they probably could have seen that coming.

In the end, the people who are going to get screwed are mostly the workers at the plants and the towns they live in.

It's an avoidable shame.

capper said...

I will admit to owning a SUV, but it is a 4 cylinder Highlander.

It still gets as good as or better than most sedans made by Ford, GM or Mopar.

My wife's Camry does even better. With judicial driving, we can get darn near forty MPH. Not too bad.

Anonymous said...

Here in Wisconsin there are many people who actually use SUV's and large trucks to tow boats, trailers, campers, horse trailers, etc. Toyota also makes large SUV's like and pick up trucks. But they seem to get a pass. Also GM makes many cars that get excellent gas mileage, however the margins on these cars are thin. I love it when people who know nothing about finance or the auto industry talk out of their ass.

I think it was a mistake for GM and Ford to concentrate most of their efforts on these products and not diversify their product lines. This is due to terrible long-term planning on upper management. However, the unions are not blameless in this either. The big three were making gobs of money from these vehicles, and the unions did not want anything to hurt the money train. They were lobbying against higher CAFE standards also. By the way CAFE is a joke, some pinhead in Washington should not be deciding what the auto companies can or cannot make. An increase in the gas tax is better. Toyota did a much better job in R&D, however, they are not strapped by the unions or past retiree benefits.

Emily said...

But I like talking out of my ass. It means I can look my opponents in the eye, rather than down at them.

You're right, however, to point out that this debacle wasn't entirely GM's fault, and that others, possibly even the unions, have played a hand in refusing to read the tea leaves and plan for a future that would require more fuel efficient vehicles.

Let me clear something up, too: I'm not across-the-board against trucks and SUVs. There are obviously people who have a genuine need for heavier duty vehicles. The problem I have is that so many manufacturers went ahead and built a lot of ridiculously huge, poor gas-mileage, tricked out luxury liners for people who just wanted something big and shiny to drive around and show off.

Anonymous said...

The last time I checked business is supposed to give the customers what they want. Why the heck would GM build a car that people would not buy? In the mid 90's GM built the GEO, it did not sell at all. If people wanted fuel-efficient vehicles they would have bought them then. It is easy now, playing Monday mourning quarterback to say what GM should have done.

GM and Ford need to make the most money they can in the short-term in order to pay for all of their sunk costs (retiree benefits, and current health care costs), they did not have the money to fund more or extensive R&D projects like Toyota and Honda can do. The big 3 catered to the Unions too much when things were good. One word that liberals hate is profit, but it takes making a profit in order to invest heavily in R&D.

What is really offensive to me, is that the upper management at GM are going to receive million dollars in bonuses over these cost cutting measures. The CEO of GM I believe received a $14 million bonus last year. I believe if you are laying off good loyal quality workers in order to return to profitability, upper management should also take paycuts, or at least not take a bonus. I am a staunch conservative (which contrary to liberal belief does not mean for the rich), and this really pisses me off. So much so that I will not by GM again.

Emily said...

Anon - It's interesting to me that on the one hand you can say "One word that liberals hate is profit" and then on the other hand ask not to be stereotyped as "for the rich" simply because you're conservative.

Do you see how that might rankle me a bit?

There are many, many facets that went into this downturn in GM's fortunes. CEOs refusing to be paid reasonable salaries even when the company is tanking is one, for sure. Consumers wanting big, inefficient vehicles beyond their financial means is another. Corporate failing to plan for a more fuel-efficient future is another. And being the auto industry ignorant fool that I am, I'm sure I'm missing several more.

John A said...

Anon - A responsible business will maximize its revenue in the current state while planning for the future. GM decided that its limited R&D was better spent on luxury items than fuel economy. They gambled wrong, and they lost. Their options weren't "either the GEO or the Hummer". A business has a responsibility to look beyond the current fiscal year. This isn't Monday Morning Quarterbacking. People have been talking about the impending demise of SUVs for years, and oil prices have been on an upward trend for almost 9 years now.

And I'm a liberal who loves profit. What I dislike is companies who act like monopolies in industries that aren't structured as monopolies. GM is not an organization that embraces change, and that will be their epitaph.

Re: the salaries, GM had revenue of something like $180 billion last year. Executive bonuses are noise. Filled with symbolism, but not a major contributor to their situation.

Dad29 said...

Ahem.

My post was very clear: I stated that "baby-boomers" [were shedding children].

The fact that NON-baby-boomers are having them is very nice, of course, but not applicable to the post.

Anonymous said...

Apart from peoples who live in states like WIS...why are people driving suv's? Its total management failure not just bu american automakers but by american governnment as well. Long ago government should have passed a law stating that suvs couldnt be owned by every ass who had some cash to spare. Oh is that unamerican? being told what to do by Govt? How about car window tinting? We ARE being told the degree of tint we can legally have arent we? heck, why not have any laws at all and have total freedom - i beleive thats called anarchy. I love the suv and pickup truck driving morons who talk about "i drive what i want" when they are the reason our boys are getting killed in iraq - for oil. The sooner we all stop being selfish and drive better cars and force auto makers to make them the better we shall all be as a nation.

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