Chrysler's Bankrupt...Time for Some Change - Part II

As I mentioned in the previous post, the troubles the auto-makers are currently facing have been years in the making. It’s wrong to blame the crisis in Detroit on the current recession since the seeds of the crisis were planted years ago through poor strategic decision making by the management of these companies.

However, instead of continuing to dwell on the reasons for the issues, I want to now discuss where to go from here. I strongly believe that American designed/built cars are on par with cars made in any other country. Despite the current climate, American talent and ingenuity is still very much intact and can be leveraged to pull the troubled auto industry out of the hole it has dug itself in. If I were the CEO of one of the big three, I would go to my next meeting with the board of directors with a plan that would look something like this:

Not So Classic Simplicity

I strongly believe that a lot of the issues that Ford, GM, and Chrysler face are related to size – the companies became too large, too complex, and too spread out in order to function effectively. 20 years ago, having Chevy, GMC, Oldsmobile, Pontiac, Saturn, Cadillac, Buick making essentially the same cars but marketed differently may have made sense. However, the brand name of a car doesn’t mean what it used to. Today’s consumer identifies brand by price point – a Cadillac is more luxurious and refined than a Chevy and, therefore, costs more. People today don’t care as much about additional stigmas associated with the brands (e.g. Pontiac is the ‘exciting’ version of Chevy, even though the cars are essentially cost the same). There are a few exceptions to this – but these are very niche brands that can continue to survive (e.g. Jeep, Corvette). Also, much of this consolidation is already happening – Pontiac and Saturn are both on the chopping block for GM.

In the end, I think the auto-makers should simplify their branding and marketing strategy to the following. All other brands can either be eliminated or absorbed into the existing ones:

GM – Chevy, Cadillac, Corvette, Buick (Buick primarily because of it’s success overseas)

Ford – Ford, Lincoln

Chrysler – Dodge, Chrysler, Jeep

Leaner, Meaner, and more Nimble

On the production side, the Big Three need to also simplify and become more efficient in their production processes. This means reducing the production capacity and making some tough, yet necessary, cuts in areas that are just not profitable. Again, this is something that’s already occurring, but it needs to aggressively continue. Companies like Honda have been very successful as the smaller, but more nimble player in the marketplace where they can easily react to changes in consumer tastes. Following this trend, at least initially, will help the big three reset themselves in position for future growth and success. In other words, take a few steps back now to take a whole lot more steps forward in the future.

Listen Very Carefully – You Can’t Afford Not To!

This goes hand in hand with the previous points. Now that you’ve simplified your company and made it more responsive to the needs of the car buyer, you need to listen to those buyers very very carefully. Figure out exactly what they’re looking for. Obviously GM wasn’t listening when they built cars like the Aztex and the HHR. You need to be proactive. not reactive, to the tone of the marketplace and this is the best time to strongly emphasizing this trait.

Always Keep Quality In Mind

The quality of cars has advanced by light years over the past 15 years. In 1990, quality was a differentiating trait – a marketing tool that some auto-makers used and some largely ignored. Today, however, advances in production technology have really evened out the playing field when it comes to build quality. This means that having high quality cars won’t differentiate you positively (since so many cars today are such high quality). On the other hand, making poor quality cars will get you kicked out of the party in a real hurry – there’s no easier way to negatively impact your image than to sub-standard build quality. Therefore, having a strong focus on quality at all times is not only a good thing, it’s imperative. The big three need to continue investing and staying ahead of the curve in this department to stay competitive.

Those are some of the high-level steps that I think the big three need to take to bring them back to prominence in the automotive landscape. There’s no doubt that the process will be a long and arduous one – one that may include more than one bankruptcy. However, there’s no doubt in my mind that if the right steps are taken, prosperity will reign.

Questions/Comments/Feedback?
Please don’t hesitate to let me know of any questions or comments you have about this post or any other. If you want me to write about something else investing related, do let me know!

The Standard Disclaimer:

The stuff I just wrote above is my opinion and my opinion only. Please do not take it as fact. Perform all necessary research and analysis prior to acting on anything I've said above. This includes consulting with a financial advisor.