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GP 1 February 2006: Autos: The Thrill Is Gone

The thrill is gone
The thrill is gone away from me
The thrill is gone
It’s gone away from me
Though I’ll still live on
But so lonely I’ll be
               - from “The Thrill Is Gone”

Autos in Turmoil.  Even as we read about a burst of energy in the Chinese automotive market, reports tumble in of turmoil throughout the global automobile industry.  GM and Ford are reeling, taking body blow after body blow, sometimes in pain from self-inflicted wounds, as their domestic market share continues to decline.  Mercedes (Daimler) has foundered, recovering ever so slowly from its mega-merger with Chrysler.  Mergers aplenty have been the style in this consolidating industry for several years; oft as not, they have not worked out.  Alliances have replaced mergers as the plats du jours, though the bosses don’t quite know how to make them work.

The Stars Are in Japan.  Toyota, with its renowned production system, continues to take global market share and to churn out profits.  Carlos Ghosn has turned Nissan into an outstanding profit-maker, and is headed to France to see if he can do the same for Renault.  These developments underlie the fact that the sun is rising on the auto industry in the Far East, as vast expansions are planned in China and India, and Korea begins to get its brands right.

The Decline and Fall.  But, in the West, the sun may be setting.  You may have missed this, because the 10 largest auto companies in the world still have 58 brands on the street, and the top 5 automakers still look strong with 75% of the global market.  (See “Extinction of the Predator,” The Economist, September 8, 2005.)  On the face of things, the party goes on.  But there’s no champagne in the glass, since the Americans and Europeans are generally not selling enough, and are saddled with wicked, entrenched costs.  GM’s healthcare costs, for instance, are simply stupendous.

For more on the state of the industry, read the columns of insightful Jerry Flint, who is president of the International Motor Press Association and whose writings provide tearful reading about auto decline.  He does not think the current spate of joint ventures amongst the automakers will solve much at all.  (See “Joint Problems,” Forbes, October 17, 2005, p.118.)

Most likely, we are now ready to enter a more radical era of consolidation.  For instance, financier Wilbur Ross thinks he might put together 3 huge auto supply companies over the next 3 years.  “Ross said he wanted to create at least two major new companies within three years, one focused on auto plastics and one on metal parts.  Each would be the largest in its niche, with annual sales of almost $15 billion. The third, smaller company would specialize in auto-safety products, the paper said” (Reuters, November 3, 2005).

From Super Vee to Super Bike.  Moreover, the car is losing its allure amongst many in the West.  We have had occasion to chat with Stuart Crow, car collector and one-time race driver, whose conversations use to turn on 4 wheels and a motor.  He was a Formula Atlantic driver, winning the 1990 Super Vee Championship.  Right now he says, “I like bicycles a whole lot more.”

There’s a greening of America that’s invaded car-crazy families and corporate suites.  As Crow says, “Every race is an environmental disaster,” and he’s not having any.  Moreover, style and good design have gone out the window, with more cars looking more alike—just hunks of metal.  He allows, “I am real hacked off at the Germans.”  And he’s a fellow that’s had all the usual German suspects, like BMWs and Porsches, somewhere close at hand.

Instead he puts in 10 or 30 miles a day on his bicycle.  And feels good for it.  He tries to peddle bike riding to all of us.  As he would have it, “I’m a dealer, and I’m selling exercise.”  But he still has a car or two around.  Maybe a ½ ton, 4-door Ford 150 to feel a tad muscular.  And a Porsche 356A from 1959, a coupe with a sun roof and a super 1600 cc engine, silver on the outside and black on the inside—a way to remember stylish days gone by.

But he most talks about his Lexis Hybrid Sport Utility.  It drives quiet.  And it picks up speed fast enough: it’s not slow and it has plenty of torque.  The RX 400h SUV (the hybrid version of the RX 330) has a starting price of $48,410, and it has been granted a clean burning tax deduction from the IRS that can add up to $2,000.  Toyota has seized the high ground with its entries in the hybrid sweepstakes, leaving other automakers chafing at the bit.

Crow would tell us that “the thrill is gone,” and autos are no longer near the center of the universe.  Even so, he likes his hybrid, talks of a truck fueled by natural gas that he would fill from a pump connection at the house, and dreams of hybrid motorcycles, which he thinks would sell like hotcakes.

The Golden Age of the Automobile.  We suspect that the Golden Age of the Automobile came in that space between the world wars, before the super highways and the interstates, when “motoring” was still in vogue, and you might see 20 cars at most on the backroads as you made your way into the north of New England.  Then there was a Bronx River Parkway with gentle curves that rippled past ponds and ducks.  Just past Crane’s Pond and its spilloff near the station, you would pass over two hillocks in the road where, if you stepped up to 45 mph, you could give the kids a rollercoaster ride that would have them rising out of their seats.  Then our parents were in control of their automobiles, and the autos did not run them.  Today Crow is getting the same pleasure and feelings of control out of his bike, and cars have just become another mindless experience for those scurrying around America’s maze.

Auto Buzz.  Even if cars are no longer our top obsession and, more often than not, we are instead driving our personal computers off into a virtual universe, there’s still plenty happening that makes tongues wag in autodom.  The technology continues to rapidly evolve; we are somewhat closer, for instance, to a self-driving car.  (See “Changing Gear,” The Economist, August 27, 2005, p. 63.)  Even if we are in the driver’s seat, we may in time only be along for the ride.  Then too, when we get into a BMW these days, the dashboard is littered with functions and technology that make it as puzzling and unfriendly as our computer or cellphone.

Over-the-top addicts can still submerge themselves in a whole subculture of terribly expensive very, very, very fast cars that we don’t much hear about.  This includes the Koenigsegg CCR, the Mercedes-Benz SLR McLaren, the Saleen S7 Twin Turbo, the Ultima Can-Am 640, the Spyker C8 Double 12 S, the Evans 387, the Lamborghini Murcielago, Aston Martin Vanquish S, etc.  Dan Lienert waxes on about these in “The World’s Fastest Cars,” Forbes, September 19, 2005.

For those trying to keep up on the gossip around an auto industry with a fading heart, there’s a blogger who fires shots that are apparently heard around the world.  He is Peter DeLorenzo, and his site is called AutoExtremist.Com.  There’s lots of fun pictures and that’s what we look at.  We never read blogs; it just seems like too much work.

So What’s the Answer? What’s Detroit to Do?  The American auto industry is in more precipitous decline than that of other nations, and poor Ford has just announced that it will be turning 30,000 workers into the streets.  In Asia—Japan, Korea, China—cars seem to be on the rise, with pollution and congestion predicted for years to come.  The Brits, of course, have backed into the future, essentially selling their industry out to the highest foreign bidders.

The Ford case provides one small part of the answer.  Massive retrenchment will have to occur because there is too much capacity in the West and too many brands. Every company has a swollen infrastructure and embedded, unrealistic overhead costs.  Probably GM and Ford will have to get some help from the government (i.e., financial aid, legislative relief, etc.) on both their healthcare and pension obligations, a massive drain on them today that stems from shortsighted moves by company and union managements decades ago.

But, as importantly, U.S. automakers will have to rethink their products and services to bring the local court advantage into play.  They’re here, and the other guys (Toyota et. al.) are over there, even if they have built the best new plants in the States.  Technology now permits, at reasonable cost, much more individuality and customization in all manufactured objects, cars not excluded.  The carmakers can begin to really “let you have it your way,” even inserting all sorts of customizing capabilities into their dealers, who have always been the very weak link in the whole auto industry proposition.  So, if GM ever builds something like a Roadmaster again (last seen in 1996), it will be delighted to offer the buyer big Impala wheels which afford a much smoother ride, something it boorishly refused to do in the old days when its implied motto was, “One Way: Our Way.”  We can have one-of-a-kind autos, rather one of our neighbor’s kind.

P.S.  We’ll have more to say about individual cars on the Global Province as time goes on.  Right off we will be remembering the Bugatti, the sweetest of pre-World War II vehicles.  VW, which owns the mark now, is coming out with its own million dollar version of this great racing name.

P.P.S.  As car markets grow more crowded and competitive, the ad men have gotten more inventive.  Honda has been a leader, and we particularly recommend this new choir ad: visit the Honda Civic site to see many more innovative advertisements.  As well, Audi has put a new spin on advertising.  Desperation is breeding lots of  innovations throughout the industry, but it will take fundamental re-invention of the industry’s business processes to bring many companies back to life.

P.P.P.S.  The romance of the automobile best carries on in certain of the long, outlandish races that continue into the present day.  We like best the Cannonball, which starts out at the Redball at East 31st Street in Manhattan, or the Peking to Paris, to be revived in 2007 as a celebration of the original 1907 event.

P.P.P.P.S.  What to drive.  One of our partners cherishes his old Packard.  Probably there’s not much past 1996 that you should be driving.  Cars, progressively, have been losing their individuality, because the carmakers have mixed up styling with engineering.  The car bosses talk about putting cars on a common global platform, but still have done a haphazard job of standardizing the guts of their vehicles.  Instead they have made them all look alike, a tremendous strategic error.  Ford, for instance, has taken the distinctive box out of the Volvo: the car has become squattier, lower, Americanized.  It’s not old reliable.  That said, it’s one of the few Ford brands that advanced marginally last year.

P.P.P.P.P.S.  Fifth Ford, as we say in “No More Tiger in the Tank,” once was on its way to owning the world, but confusion at the top has let it all slip away.  Our leadership in many venues lost its way in the last quarter of the 20th century.

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