Young Car Buyers Challenge Detroit

Young Car Buyers Challenge Detroit
http://tinyurl.com/myk8ej

GM, Chrysler, and Ford must convince Gen Y consumers that their quality
has risen and their new models deserve consideration

By David Kiley

As Chrysler emerges from Chapter 11 bankruptcy, and as General Motors
(GM) in all likelihood heads into the same process, the toughest and
most important obstacle facing those companies will be young consumers
like Joseph Molinari.

Molinari, a 24-year-old recent graduate of the University of Michigan's
Graduate School of Social Work, is in the heart of the so-called
Generation Y, consumers between the ages of 22 and 32, whose parents are
baby boomers. Armed with his degree and in a new job in Pinetop, Ariz.,
Molinari is driving a nine-year-old Honda Accord that he got while in
college, purchased with help from his parents off a used-car lot. The
car has a glitchy transmission, and the prospect of snowy mountain
driving in months ahead has Molinari thinking about new wheels. But so
far he is not very intrigued by the amazing deals to be had on Fords,
Chevrolets, and Dodges. The car he is most interested in checking out is
a Subaru Outback, because of its high marks for reliability and a tough
all-wheel-drive system.

"I go with what the research tells me, and then I look at price," says
Molinari.
Settling for a Low Price

There's the rub for GM and Chrysler, and to a lesser extent Ford. At
least two generations of Americans have grown up thinking that U.S.
brands are not the preferred option for passenger cars. In any one
category for the past decade or so, the best-selling cars in America
have been of Japanese origin—Toyota Camry, Honda Accord, and Nissan
Altima. Ford's F Series pickup has been the best-selling vehicle
overall, but truck buying is very different from car buying. Chevy has
actually been the leading brand among Gen Y, according to researcher
AutoPacific, but there's even bad news in that: Sales have been driven
overwhelmingly by the brand's lower pricing and cheaper subcompact and
compact offerings, not by preference. "They settle for Chevy, but aspire
to imports mostly when they get a bit of money," says AutoPacific's
Deborah Grieb.

It's well established that Detroit automakers lost ground in the 1970s
and '80s with baby boomers. Rebellious and independent when they were
buying their first cars, boomers did not want "their father's
Oldsmobile." They flocked to Asian makes like Toyota (TM) and Honda
(HMC) just as those companies began setting the industry pace for
quality and reliability, which Detroit has been chasing ever since.

The bad news for Detroit is that so far, at least, children of the
boomers aren't showing a similar streak of auto-brand independence.
Fifty-one percent of Gen Y say they are considering Toyotas, according
to AutoPacific, while Chevy scores with only 34%, Ford (F) 32%, and
Chrysler 10%. It's a trend that GM, Chrysler, and Ford need to reverse
if they're going to regain traction in the U.S. market.

"Gen Y is much more apt to be aligned with their parents' brand choices
than those boomer parents were with theirs," says John Wolkonowicz,
director of special projects at IHS Global Insight's automotive
practice. American carmakers "simply must do much better with Gen Y than
they did with their parents, or the comeback we keep hearing about may
not happen."
Rejection by Gen Y

Reliability and reputation matter a great deal to consumers, but
especially those in Gen Y. In J.D. Power & Associates' "Avoider"
research, which surveys car buyers on why they avoided certain brands,
around 30% of boomers, Gen Xers (those aged 33-45), and Gen Yers said
they were "concerned about reliability." Nineteen percent mentioned "bad
reputation of manufacturer." And in both those categories of rejection,
Gen Y had the highest level. For example, in the Power survey 24% of Gen
Y survey takers cited "bad reputation," while just 18% of their boomer
parents did.

So, it's a double whammy for Detroit. Not only is Gen Y larger than
either the boomer or Gen X group, but its rejection rates are higher as
well. "In areas like fuel economy, the U.S. manufacturers are doing much
better and can penetrate the market with that information," says David
Sargent, vice-president for research at Power. "But changing overall
attitudes and perceptions about quality and reliability takes longer."

Trouble is, these younger consumers are slaves to Internet research. And
when the leading third-party arbiters—such as J.D. Power (a unit, like
BusinessWeek, of The McGraw-Hill Companies) and Consumer Reports—put GM
well behind the likes of Toyota, Honda, and the Europeans, it makes it
tough for rational consumers with little "Buy American" sentiment to
choose a U.S. brand unless they are bowled over by a particular
vehicle's design or price. Consumer Reports recommends no Chrysler
products this year. GM only had 19% of its vehicles on the recommended
list. Meantime, Ford had more than 70% of its vehicles recommended,
about the same as the Toyota brand (not including Lexus and Scion).

But there are people working to change Detroit's fortunes who see hope,
especially as GM and Chrysler get rid of models and brands that have
dragged down their reputations and quality scores. Eric Hirshberg,
president of ad agency Deutsch/LA, which has handled advertising
assignments for GM as well as its Saturn unit, says he believes GM in
particular has a fresh opportunity with Gen Y.
Lots of Also-Rans

"GM is at its lowest right now, and it is being forced to focus its
operations on its best and core products and brands, which are quite
good," says Hirshberg. He believes that if you get GM down to its 15 or
16 best products, it is a "lineup Toyota would be envious of." Chevy
Malibu was a "North American Car of the Year." The Cadillac CTS luxury
sedan has been widely accepted as a worthy alternative to German sedans.
And Chevy Impala and HHR are both Consumer Reports recommended.

The trouble, Hirshberg notes, is that GM has maintained dozens of
vehicles over the years that were past their "sell-by" date. The company
stretched its resources too thin, leaving a lot of chances to score
poorly on the quality surveys.

Indeed, GM is expected to whittle down its brands in the U.S. from eight
to four, concentrating on Chevrolet, Cadillac, Buick, and GMC. Chrysler
likely will eliminate the Chrysler brand and replace it in showrooms
with Fiat (FIA.MI). The Italian automaker will own a large stake in
Chrysler and run the operations as it comes out of Chapter 11
bankruptcy. "Could be that when Fiat and Fiat-inspired vehicles begin
showing up in the showrooms, young people get drawn in out of
curiosity," says independent marketing consultant Dennis Keene. "That's
what happened when New Beetle showed up at Volkswagen stores—that car
sold a lot of Jettas and Passats because the Beetle got people to the door."

Another wild card that could work in the favor of U.S. carmakers is
Barack Obama. The new President has already talked more about the U.S.
auto industry in three months than the last two Presidents in their
collective 16 years, and he is invested heavily in the success of the
restructuring of the companies.

"A year or two of Obama emphasizing the restructured GM and Chrysler,
which he has staked his reputation and taxpayer money on, and you could
start to see Gen Y take a lot more interest in these brands and looking
at them in a new light," says Keene. Chrysler executives have already
been playing that card. "President Obama thinks the new Chrysler is a
good investment, and he is putting more than $4 billion into it," said
Chrysler Vice-Chairman James Press when discussing the automaker's sales.
Potent Cheerleader

An Obama commitment to cheerlead the industry could help not only with
younger buyers but also in certain geographic regions. GM, Ford, and
Chrysler have very small shares of the passenger-car market in
California, the Boston-Washington corridor, and Southeastern states.
Ford, for example, says its market share in California is less than 2%
after subtracting Ford pickup and Mustang sales. It's comparable for
Chevy and worse for Dodge. In the first quarter of this year, Detroit as
a whole held but 27.6% of California, compared with 51% nationally.
Japanese brands held 53.3% of California new-car sales, vs. 38.2%
nationally.

In the Washington region, Ford holds around 5% of the passenger-car
market. When GM conducted focus groups for perhaps its best car, the
Chevy Malibu, among college-educated women in the Washington area, the
results overwhelmingly showed the women scoring the car extremely high
for design, styling, and features. But when they were shown it was a
"Chevy Malibu," acceptance "dropped off the table," said one GM
executive who saw the results.

The U.S. industry will need the President boosting its image. Brands
that are already popular with Gen Y are in expansion mode. Volkswagen is
ramping up a big push with a new U.S. factory. Automakers in China and
India are preparing to enter the U.S. And AutoPacific's study shows that
49% of Gen Y would gladly consider a Chinese vehicle, compared with just
21% of the country as a whole. Thirty-four percent will consider cars
from India, vs. just 14% of the country overall.

That's disconcerting, to say the least. If GM is going to bounce back,
it is going to have to change some minds. The Chevy brand represents
more than 13% of market share in the U.S., and about 65% of GM's sales
today. That share will only rise after GM lops off its other brands.
Chevy is going to be by far the most important brand for GM—whether it
makes the company, or breaks it.

 

Unfortunately, I think I read virtually the same story for the first
time in 1978.

 

That's all bullshit, of course.

It's all about ego and prestige, especially for the 20-something crowd.

What they want to drive is a porche, ferrari, lamborgini, mercedes,
lexus, bmw, etc. If they could afford it, they'd have one, regardless
of what the "reviews" said about them.

They want a status symbol. Something exotic. Something FOREIGN.

So they go down the price ladder until they hit the most exotic, unique,
foreign car they can afford.

Subaru meets that need, for the moment, like Honda and Toyota did
(moreso) 5 to 15 years ago.

It's also why pickup trucks became so popular for young guys and young
families for the past decade.

Exactly. It's all about ego and prestige and the perception of owning
something "unique". Unique in this case means something that is made in
a distant, foreign land (many 20-somethings probably don't know that
their jap car or their VW wasn't made by expert german craftsmen wearing
white lab coats using digital calipers).

And even when those jap cars of the 80's were crap, they bought them for
the prestige status among their peers. Peer pressure is very high with
the 20-something crowd.

They say they look at reliability, but that's only because they don't
want to admit that they are really just trying to follow the hip crowd.
Jap or european reliability isin't really a factor, and hasn't been for
much of this decade.

The problem is, most good, hard data about reliability and durability
isin't available unless you pay for it.

What is available for free is a lot of second hand opinions and garbage
and other 20-somethings justifying why they bought their Civic or Accord
or Passat.

 

Toyota and Honda are quality products and have been so for some time.
The younger consumers have long since voted with their $$$ and they
voted for Toyota, Honda, Subaru, etc. When they need/want a new car it
would not ever occur to them to look at the offerings of the Detroit
Duds. Detroit is reaping the rewards of screwing the consumer-Detroit
loses big time, especially so with bankruptcy and big $$$ theft from the
taxpayer. The failure of Detroit is their own fault.

 

Do you have to be a full-quoter?

And at one time they also made shit.

And GM, Ford and Chrysler have also been bulding quality products for
some time.

Their hormones tell them how to vote (or how to spend money).

The failure of Detroit is the result of labor laws that give
manufacturers no recourse but to capitulate to union demands for higher
wages and more benefits.

When a workforce decides they are not being paid enough for the work
they do and they go on strike (as is their right), the employer should
have the abilily to higher anyone else off the street who _will_ perform
that work for the same wage.

If the wage is truely deficient for the type of work or the skill level
required or if there aren't enough qualified people on the street to
replace the striking workers, then market forces (supply/demand) are
operating properly and the employer has no choice but to increase wages.

But when potential replacement workers exist but can't be hired, or when
the rule of law breaks down and they are not allowed to physically enter
the workplace, then you can't rationally blame the employers for having
no choice but to cave to the irrational demands of the striking
workers.

Ultimately, it's the police and law enforcement, US labor laws and the
politicians that crafted them along with foreign trade agreements, that
are the reason why domestic manufacturing companies became financially
insolvent.

Chrysler and GM are not in trouble currently because of the quality of
their products. All manufacturers (domestic and foreign) are in trouble
because of demand destruction (the consumer has closed his wallet).

GM and Chrysler are in trouble because they don't have access to
private-sector financial support right now (like they had in the past)
that other foreign companies still have - in addition to financial
support from foreign gov'ts.

 

Market forces - wow - imagine that. Unfortunately the people in this
country who don't believe in free markets plus the people who are too
stupid to know what it even means outnumber people intelligent enough to
understand what it means and realize what its destruction means for our
quality of life. It will be a miracle if we can reverse a fraction of
the damage that has already been done and further damage that is planned
to be accomplished between now and Nov. 2012.

 

MoPar Man wrote in message: "The failure of Detroit is the result of labor
laws that give manufacturers no recourse but to capitulate to union demands
for higher wages and more benefits."

Actually you are wrong there. For the last 8 years and when ever a
Republican is in office the labor department sides with companies more then
they side with unions. Even with the few years the they do side with unions
in the last 35 or more years the labor laws have continue to decline in
favor of the union. Biggest one is the right to work that many states
passed.

Unions are not there to protect the bad worker but to make sure the company
follows their own rules and that of OSHA. Apparently you have no idea how
unions really work. It not all about wages. Having sat at the negotiating
table, wages is not the top priority in any negotiations. If companies
could not afford to pay the proposed wages, benefits, and other proposals,
they have a right to say no. The union can not just call a strike anytime
they like. Wildcat strikes are illegal under the present labor laws, By
the way that is one that was taken away from the unions during the last 35
years.

You should thank a union worker for your safety because if it would not have
been a bunch of workers unionizing and demanding safety OSHA would not be
here today at least in its present form. You should thank a union worker
for being part of the middle class because if it was not for your union
worker you would be making a lot less will companies make all the profits
and do not share any with its workers.

Proud to be union.

Sarge

 

Unions are a sick joke. I will never, ever work again for a unionized
company. The best was when we couldn't do some simple task, like pick
up a tool, that took 30 seconds so we could finish our work--because the
union rules said that the official tool mover had to do that and he was
too lazy to do anything. Why should he? He gets paid anyway.

When you hear it's not about the money, it's about the money. Unions
exist for two reasons, to protect the laziest, most incompetent
"workers," and to make the union leaders rich. The places where I have
worked were much more concerned about OSHA regulation compliance when
they weren't union shops, the union shops were too busy trying to figure
out how to get productivity from the workers when their wages, raises,
and employment was virtually guaranteed as long as they didn't kill
somebody.

How telling that unions stand for LESS rights for workers. Unions are
actually against allowing workers have the right to work for a company
without joining the union or paying protection money to the union. I'm
proud that my work and performance is sought after (and compensated) by
my employer and I don't need some BS money grubbing organization to get
in the way.

It's fascinating watching GM and Chrysler flush themselves down the
drain, in no small part to union rules that paid thousands not to do any
work. I'll never own another GM car, although I might consider a
Chrysler depending on how things go.

 

In the last few days a local Chrysler dealer has been flooding the radio
with loud ads. The big pickups are often the subject of these ads.

I'm not impressed, because the car line which I didn't like since 2005
is still the same. Nothing on the showroom floor that I desire.
So this senior who pays cash isn't going to be a buyer yet.

 

It's not a matter of doing things that are for or against the union or
the management. Some things are basic principles that are violated by
what the unions strive for. "Right to work", when stripped of the "us
versus them" politics, is a basic principle. To do otherwise would be
wrong purely on principle. The fact that you see something that is
confirming basic principle not as an issue on principle but as against
the unions is telling. It says you, probably without even realizing it,
put unions above principle or are blind to the fact that "right to work"
is a basic principle when you look at it honestly.

 

Blind? How about deaf? And dumb?

How about listening to "those doing the work" as Peter Drucker
recommended decades ago?

Compare that with management's frequent retort "get to work, let us
manage".

And how about management's "responsibility to manage"? With real
consequences if they fail. Not a 36+ month bankruptcy process with the
same failed managers who destroyed billions in capital in charge throughout.

Most management teams want it both ways, big bucks and big options
packages in the good times and big bucks ("to retain world class
talent") and an options reset to the historic new lows when they fail.

Shareholders rarely even have "a say on pay". HR consulting firms
torture the comparables to support anything numbers the managers who
retain and pay them would like in a pay package.

Such irrationality is one reason collective bargaining emerges where
none previously existed or was desired for industrial purposes.

It's an issue of fairness and equity, let alone rational behavior.

 

You realize that you *just* illustrated *exactly* what I was saying:

"...'Right to work', when stripped of the 'us versus them' politics, is
a basic principle...The fact that you see something that is confirming
basic principle not as an issue on principle but as against the unions
is telling. It says you, probably without even realizing it, put unions
above principle or are blind to the fact that "right to work" is a basic
principle when you look at it honestly."

Do you not see "right to work" as a fundamental principle, or are you
unable to discuss it stripped of the other baggage of the "us vs. them"
politics often surrounding it?

It boils down to this: All right-to-work says is that neither you nor a
union cannot tell me that I can't go to work at a company on a given day
if the company and I agree on the terms of my employment. Do you not
agree with that, stripped of all the extraneous b.s., on principle?

 

Drop the pretense and read what I wrote.

Let me boil it down for you: Top management is frequently incompetent
and wretchedly and excessively compensated for their incompetence.
Shareholders have no say in stopping this cycle of incompetence and
entitlement among incompetent management. Anyone working for an
incompetent ought to have protection, and be considering whether to
separate themselves. Even middle management and first line supervision.

 

I don't know what pretense you are talking about.

To repeat:
"Do you not see 'right to work' as a fundamental principle, or are you
unable to discuss it stripped of the other baggage of the 'us vs. them'
politics often surrounding it?

"It boils down to this: All right-to-work says is that neither you nor a
union cannot tell me that I can't go to work at a company on a given day
if the company and I agree on the terms of my employment. Do you not
agree with that, stripped of all the extraneous b.s., on principle?"

They can't sell their stock? If they did sell, would that not have some
impact?

< ...Anyone working for an

Hmm - I thought slavery had been outlawed. Your following statement
makes no sense at all since anyone is free to quite their job at any
time: "Anyone working for an incompetent ought to have protection, and
be considering whether to separate themselves." The protection *is* the
freedom to quit - like I said, slavery in the U.S. has been illegal for
some time now.

So I'll ask once more: Do you not agree in "right to work" as a
fundamental principle?

 

Drop the pretense and read what I wrote.

Let me boil it down for you: Top management is frequently incompetent
and wretchedly and excessively compensated for their incompetence.
Shareholders have no say in stopping this cycle of incompetence and
entitlement among incompetent management. Anyone working for an
incompetent ought to have protection, and be considering whether to
separate themselves. Even middle management and first line supervision.