Car Guy

The Future of the Car Industry

The last six months have forced the issue -- the future is now, constricted.

By 2.17.09

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What's likely to happen to the car business over the next year? A great deal, of course. But don't take that to mean it will all be bad. Some will be. But much of the change that is coming is purgatory -- and necessary. The events of the past six months have merely forced the issue. Here's how I see things breaking down:

* GM will survive, but its half-dozen divisions will not.

Did you know that at one time Chevrolet, by itself, had more market share than all six of GM's current divisions -- Chevy plus Pontiac, Buick, GMC, Saturn, Cadillac, Hummer -- combined do today? Yep. But GM has not adjusted its divisional structure to reflect the realities of its current market position. Six divisions, each of them fielding a full range of models, is unsupportable when your total market share is less than 25 percent.

Which ones will go -- and how they will go -- is yet to be determined. There may be a merger of brands, or a trimming of models within each brand. But rest assured that by 2010 there will no longer be six full-line GM divisions.

* Chrysler will sleep with the fishes.

The lesions are just too deep (and the market too unforgiving) to have any real hope for Chrysler's survival. It is the AMC of 2009. Remember American Motors? By the late '70s it was out of money -- and its products were dated as well as plagued by shoddy workmanship. It was a vicious cycle. There was not enough money to "do it right" so corners were cut in obvious ways, which consumers quickly found out about. Which of course led to even worse sales. Which led to even less money to fix the original problems. That same cycle is bleeding Chrysler white today. It has models that are obviously out of date (PT Cruiser, Sebring, Pacifica) but it hasn't got the money to update them. It has a few others that are nice enough (300, Challenger, big trucks/SUVs) but which are totally wrong for the times and can't be given away. Sprinkle in crushing debt and union/pension obligations and ask yourself, who would want any part of this? Fiat to the rescue? No one -- not the Americans, not the Japanese -- can sell the cars they have here already. Do you think Fiat, a brand with zero presence in the U.S. market, is going to succeed where even Toyota is having serious trouble getting a leg up?

Sayonara, Mopar.

* Everyone will scale back.

Just as GM has too many divisions, most car companies have far too many models and sub-models of those models. Toyota, for example has (brace yourself) no less than 17 separate models -- not counting Lexus and Scion. Mercedes-Benz has doubled its lineup in the space of a decade and now sells (god help us) minivans. Honda, Nissan, and the rest are similarly afflicted -- and suffering, as a result. Everyone is trying to sell everything and it's just too much. It is very hard to make a sale (let alone a profit) when there is such a glut of offerings available.

The herd must be thinned.

Maybe we will see a return to the specialization that used to be such a successful business model. For instance, VW was much healthier when it focused on value-priced but high-precision/high-quality cars. It made a big mistake trying to be all things to all people -- which only caused a shedding of its core customer base while failing to attract the higher-end buyers it wanted.

Maybe trucks and SUVs should not be sold by everyone, either.

And so on.

* Overdone (and overpriced) cars are out.

For openers, the distinctions that used to be obvious between "economy" cars and "luxury" cars aren't so obvious anymore -- other than in terms of price. Yes, you can pay $40,000 for a car. But an $18,000 car will have most of the actually useful features and equipment that used to separate a luxury car from a car for the Masses -- things like climate control AC, power windows, locks, cruise control; a nice stereo, etc.

The car companies have been desperately trying to re-establish the distinction (and justify the silly MSRPs they're asking) by incorporating more and more essentially useless equipment (high-powered engines that won't get you anywhere faster on today's traffic-jammed roads; comically overwrought electronic "aids" such as mouse controllers, etc.) into their middle and higher-end product.

But people are not buying that anymore. It has dawned on them -- via the blunt force trauma of economic collapse -- that they don't need this stuff and can get by fine without it.

More bluntly, the idea that average people can -- or should -- be driving around in $40,000 (or even $30,000) cars is headed for the same place that no-doc mortgages went. It was a Potempkin Parking Lot financed by pyramid debt that has since collapsed and which cannot be resurrected. Newsflash: The average family income in this country is under $50,000. Cars -- if they are to be sold based on ability to pay off the loan -- will have to have their MSRPs adjusted accordingly.

Either that or the spending power of the average American will need to be brought in line with the cost of new cars. Which do you suppose is more likely to happen?

In sum, I predict we'll see several fewer brands of cars -- and many fewer cars -- by this time next year. The ones left standing will also be less frilly -- and cost a lot less, too.

It will be rough on those who are going to lose their jobs, obviously -- but the coming contraction is both necessary and inevitable.

We should have seen it coming, of course. But that doesn't mean we can do anything to stop it from happening.

Not anymore.

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About the Author

Eric Peters is an automotive columnist and author of Automotive Atrocities: The Cars You Love to Hate (Motor Books International) and a new book, Road Hogs.