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A Great
Fall
All the King’s
horses
…and all the King’s
men
…couldn’t put Humpty
together again.
To a little kid with
an enormous out-of-control imagination there were
several things about the story of Humpty Dumpty that
are still bugging me even still, today, more than
fifty years since I first heard it.
First of all, what
was an egg doing sitting on top of a wall to begin
with? It just doesn’t make sense that something as
fragile as an egg would do something that incredibly
stupid. Maybe Humpty was so arrogant and naïve to the
point that he began to believe he was invincible …and
perhaps immortal.
Then, what’s with
all this crap about the King’s horses and all the
King’s men trying to put an egg back together again?
Excuse me folks; it’s just an egg. And explain to me
exactly why the horses were even involved in the
attempted restoration project? The evidence is clear.
I believe the story of Humpty Dumpty is actually about
an assassination plot. In other words, there is strong
evidence in the text to support the theory that
perhaps Humpty may have been pushed. I am talking
conspiracy...or maybe a paid contract hit.
There is a very real
and distinct possibility that the wall itself might
have been defective. What if the wall had been
constructed with inferior materials because the King
had pressed his suppliers beyond reasonable limits?
Perhaps the mortar holding the bricks together was
made with inferior material because of Royal
cost-cutting? Then again, perhaps the bricks that made
up the wall were improperly fired and hardened because
the Royal masons were trying to be the low-cost
supplier. Maybe they used Fire-Stones.
There is a poster on
the wall in my office. It’s a picture of a giant
brontosaurus. The caption reads… “History is filled
with giants who refused to adapt.”
In recent years
we’ve all watched in wide open-mouthed awe as the
giants of the automobile industry have taken some
incredibly great falls…and…just like in the fairy
tale…the Kings sent horses and men to attempt to
repair the unrepairable damage.
Speaking of Kings and Princes...It breaks my heart
when I read about Bill Ford addressing the annual
stockholders meeting trying to put a positive spin on
mismanagement, lack of creative vision and apparent,
evident gross incompetence. As Ford Chairman and Chief
Executive there he was, our guy, William Clay Ford Jr.
tap-dancing in front of a surly mob of angry investors
infuriated by last year’s $5.45 billion loss. He said
he expected the company to make money this year. Yup,
Bill Ford is optimistically predicting Ford Motor
Company will break even in the second quarter.
In the meantime
Toyota Corporation just announced a projected $8.2
billion operating profit for the year ended March 31st.
Honda and Nissan
profits are off the charts with double-digit
increases.
With market share
hovering around 17.5% with a down arrow, we’re talking
about the same Ford Motor Company that was poised to
gain undisputed market dominance less than a year ago.
In 2000-2001 Ford was approaching 29% market share,
consistently going neck-on-neck with General Motors.
Ford was clearly in the passing lane headed for the
number one position.
One of Bill’s more
brilliant short-term strategies is the promotion of
Jim O’Connor to head up North American operations.
O’Connor is a “Car Guy” and relates well to dealers. I
believe Jim O’Connor is Ford’s best shot at patching
up dealer/factory relationships. Unfortunately there
are too many hard issues driving a wedge between Ford
Motor Company and Ford Dealers. Ford has earned their
dealers distrust at a time when they need dealer
support more than ever. In my opinion, I believe Ford
Motor Company is still pursuing an agenda that will
erode and diminish their dealers’ profitability...an
agenda designed to eliminate and control their dealers
as well as circumvent the intent of state franchise
protective laws.
I have said
repeatedly that I don’t feel Ford Motor Company is
sincere in their effort to reconcile with their dealer
body.
Forgive me if I
sound frustrated here. I was really looking for
cataclysmic, high-energy, excitement. When Billy
dropkicked our little Lebanese-Australian buddy
through the field goals, I was cheering. At the time I
was envisioning new, dynamic, re-energized products
and a spirit of optimism that would reverberate
throughout the company. Somehow I was thinking Bill
was going to be this leader who would rally the troops
for the battle at hand. What did we get? What we got
was more of the same repackaged, dull, uninspired,
lack of vision...lack of direction...rhetoric with no
concrete foundation. This is same smoke-and-mirrors
dog-and-pony show with a new ringmaster.
When everyone was
expecting a sales, marketing and product solution...we
got more cost-cutting. Now they’ve hired an army of
dull, plodding bean counters to further de-content,
cost-cut, and rape the value of the product offering.
Their big plan to save the company is to de-content
the product by another $700 per unit. Wolfgang
Reitzle, the last Car Man on the point, was run off by
a sharp pencil when all he wanted to do was
aggressively sell cars.
In a national story by Reuters on May 15th,
the headline read...
Ford vows
to keep cost cuts hidden from consumers
It seems that Billy promised the stockholders that the
cost-cuts would not be evident to the consumers (as we
cheapened the cars and trucks I assume).
In the Reuters
article Bill Ford was quoted as saying... "We have to
be very careful," Ford said of the product
cost-cutting drive, and elimination of what experts
determine to be "unnecessary" features on vehicles.
Reuters: To fine-tune the process, known in the
industry as "de-contenting," Ford said several hundred
product engineers had recently been added to a
300-strong team working since January on ways to trim
manufacturing expenses without hurting vehicle quality
or customer satisfaction.
Excuse me; did he
say they have 300 engineers working on de-contenting
and cost-cutting?
Finally Bill Ford
repeated the Ziegler quote he seems to be most fond
of... he said "we can't cost-cut our way to
prosperity."
Described in the media as “a tough
cost-cutter”, once again Bill Ford shakes up
management moving David Thursfield to Global World
Headquarters in Dearborn as head of international
operations and purchasing. Thursfield’s mission is to
slash another $3 billion from purchasing costs by
2005. Mr. Thursfield was previously the head of Ford
of Europe.
And now, Steve Lyons
is promoted to President of Ford Division. Coming in
facing 4000 dealers who have repeatedly rated their
manufacturer at the very bottom of the NADA
Dealer/manufacturer satisfaction surveys, Lyons has
his work cut out for him. With Ford sales off another
10.1 per cent in the first four months of this year
and General Motors ramping up truck sales with an
ocean of excitement and momentum in the pipeline,
Lyons squeaked out some brave rhetoric for the media
saying he expected Ford to bounce back in the second
half.
Meanwhile, General Motors
continues to scramble
after buying
controlling interest of the bankrupt Daewoo Motor
Company for $251 million. (One of the best deals on
record since the settlers traded beads for land with
the Indians) Quoted in the Korea Economic Daily Kim
Seok Hwan, president of Daewoo said the plan is to
ramp up production to 900,000 units a year
immediately.
Jack Smith said he expects Daewoo sales to exceed $5
billion annually. Obviously, General Motors is going
heads up with Hyundai. Kim went on to say..."GM has a
business plan to beat Hyundai Motor in the passenger
car sector, rather than making Daewoo Motor a simple
subcontractor.” Talk about a challenge...Do I hear GM
saying they’re going to kick Hyundai’s ass?
If you’ve been following this column, you know I have
said repeatedly that the Koreans are going to be
juggernauts in the U.S. market. I was in print as much
as a year ago predicting they were going to become
major players to be reckoned with. Now it seems that
suddenly the entire industry has caught up with me. If
you listen to Gary Cowger, president of GM North
America...the headlines scream “GM needs a Korea
fighter”...attributing the quote to Cowger. Steve
Lyons, incoming president of Ford Division is echoing
the same sentiments.
The buzzword here is “Low-End”...and nobody wants to
abandon that part of the market. The Koreans came
blitzing into the market capturing the “Low-End” and
the “Ultra-Low-End” market segments while virtually
every other manufacturer in the industry was caught
snoozing. In other words.... nobody has a good cheap
reliable passenger car. Well we all know those
“Low-End” buyers of today will be the upper middle
class of tomorrow.
GM’s acquisition of Daewoo was brilliant but I think
they’re making some incredibly stupid strategy
decisions that will come back to haunt them in years
to come if they don’t handle these situations
immediately. Their immediate, short-term plan is to
market Daewoo in Mexico probably rebadged as a
Chevrolet product. The real problem is there are 525
existing Daewoo dealers in the United States. Granted,
the company was bankrupt and GM may have legal grounds
to abandon these dealers...and then again...maybe not.
Right now they have customers out there driving Daewoo
products who do not have warranty service or parts
availability.
Lawsuits and
negative publicity are inevitable. Last week 23 Daewoo
Dealers in Florida, represented by Dealer Advocate
Attorney, Dan Meyers, filed a complaint asking Florida
to intervene blocking General Motors business plan.
The dealers are claiming their franchises were
illegally terminated and they are asking the court to
require that General Motors honor their franchises and
pay for warranty work...as well as guarantee parts
availability. This is one case General Motors might
win in the end but they will certainly lose the war. I
believe it is in their best interest to find a way to
make this situation quietly go away. If they ever have
plans of bringing that product into to the U.S.
Market...even if they plan to rebadge it as a
Chevrolet...they don’t need any black clouds or
negative press.
This still doesn’t
solve the big problem that GM doesn’t have a “Low-End”
car in the U.S. Market. The outdated Cavalier and
Sunfire models don’t meet the category. As I am sure
you know I have no confidence in Saturn to produce
sales results regardless of how much product they are
supplied with.
Now here’s where it
gets weird...I was just reading an interview with
Wolfgang Reitzle that was conducted by a publication
called Global Auto Insider, a publication of Global
Auto Systems.
If you’ll recall,
last month I was highly opinionated (go figure) about
the resignation of Wolfgang Reitzle from his position
as head of the Ford Premier Automotive Group following
alleged clashes with Nick Scheele. An event I
characterized as a collision of a “High-Energy
Visionary” with a “Slow Plodding Bean Counter”. Well,
as Paul Harvey would say... “The rest of the story”...
It seems like
Wolfgang told the interviewer he was offered an
executive position at General Motors by Vice Chairman
Bob Lutz. Here’s where it really gets a little farther
out there...Wolfgang claims Lutz offered him General
Motors’ Opel and Saab chief position with a guarantee
that he would be Lutz’s successor when Lutz retired in
2004. According to Wolfgang the offer was made on
April 15th of this year.
Did you ever see a
little puppy get so excited you know it’s going to pee
all over the place any second?
Well, that’s at
least similar to the excitement I feel when I see what
Cadillac Division is up to. For years and years
Cadillac was the embodiment of the American dream.
When you were describing quality or luxury you
compared a product as the “The Cadillac” of this or
that. In the movie “Giant” James Dean drove an El
Dorado convertible. The car was a statement...an icon
symbolizing success.
Somewhere along the
line we lost all of that magic. Cadillac became just
another “Old Fart’s” car. Young affluent professionals
wouldn’t get caught dead standing near one much less
driving one. Well, there’s a fresh wind blowing here
and the air is crackling with electricity. Cadillac is
exploding with new product reaching out to all
segments. Last week they introduced the new Cadillac
SRX...a sort of luxury performance mini van family
vehicle seating seven. The SRX will probably be a
half-year model coming out in spring of 2003.
I am currently
driving my third Escalade and I am still excited about
the product. The Escalade EXT, which is a hybrid
pickup, is starting to really sell well. Now watch for
the Escalade ESV coming next year on a Suburban
platform.
Last week my 13
year-old son, Zachary, who is a car fanatic came
running into the den all excited. He wanted me to look
at one of his “Car Magazines”. What he wanted to show
me was some concept drawings of the Cadillac
Cien...the 750 H.P. supercar Cadillac may or may not
produce. It was cut like a stealth bomber with radical
design and appeal. Here was my teenager getting all
excited about a Cadillac.
They also have a
two-seater roadster in the pipeline due out next year
called the XLR. Once again we’re talking radical
design and appeal.
Where General Motors
is overflowing with new and exciting product, Ford and
Daimler-Chrysler have very little innovative or
exciting entries in the pipeline. According to an
Associated Press article I just read, many industry
analysts are beginning to feel more positive about
Chrysler’s recovery BUT most analysts are of a
singular opinion that Chrysler lacks the new products
needed to drive the turnaround they’re looking for.
With 11 new product entries in the pipeline, analysts
still don’t feel there’s a significant enough change
coming fast enough to turn the market.
Talking to a
Chrysler executive last week I got some real
perspective on what’s happening in Auburn Hills.
Remember, Daimler-Chrysler posted a $111 million
first-quarter profit. Well, that was 100% generated by
cost-cutting NOT by increased sales.
Chrysler quality is
greatly improved with the Daimler synergy but the
public has yet to catch up with that reality. As I
wrote last month, there is still a lot of corporate
turmoil in Germany as Juergen Schrempp continues to be
under attack by angry stockholders. The Kerkorian
lawsuit has everybody spooked. There is a lot of
shareholder sentiment that Daimler-Chrysler should
divest Chrysler Corporation and get back to core
competency of building well-engineered high-line
European luxury cars.
One overwhelming
theme I am hearing from all of the manufacturers is
they are aggressively looking to reduce the number of
dealerships. Of course, the Germans are a little less
subtle about it. Two years ago I wrote an article
titled “Mayhem in Mayberry” where I discussed the
manufacturers desire to get rid of small town under
performing dealers. Well, it really came home last
week as one Chrysler executive was relating a story
about a recent meeting with one of his top German
counterparts; The Germans want to reduce the number of
Chrysler Dealers to 2000 nationwide. They envision
2000 high-volume Five Star Certified dealerships.
The Germans are
openly upset with low-volume small town dealers. The
idea that there are franchised dealerships selling
less than 50 or 60 new units annually is not
acceptable.
All of that being
said, on the other hand we have Mercedes Dealers
raising Hell...again. It seems like Daimler is looking
to add another 16 to 18 metropolitan Mercedes Benz
dealerships. There are currently 310 Mercedes dealers
in the U.S. Remember; Daimler has aggressively put
pressure on non-performing dealers effectively
thinning the dealer ranks. Now, they’re talking about
equally aggressive expansion in major markets by
adding new dealerships.
This morning I was
the keynote speaker for the combined
Mississippi-Alabama annual dealers’ convention in
Perdido Key Alabama. One of the points of discussion
centered on the fact that manufacturers were
attempting to create new franchises not necessarily
offered to their existing dealers. You may remember
this trend started with the Oldsmobile Aurora a few
years back when GM declared it was a new franchise and
dealers had to jumps through hoops to have the right
to sell the product.
Now we have Mercedes
trying to introduce a new ultra-luxury model called
the Maybach. We’re talking about a limited 9000 to
12000 annual unit production car that sells for
upwards of $333,000 competing with Rolls Royce and
Bentley. The dealers are pissed off because Mercedes
wants a separate dealer agreement and an initial
investment of more than $400,000 to secure rights to
“The Franchise”. Of course, Mercedes dealers feel they
have the right to sell any Mercedes product and the
factory is using the new model to circumvent franchise
laws.
In recent years
Mercedes has severely deprofitized their dealers ala
Ford Motor Company’s Blue Oval strategy. Not only has
Mercedes reduced dealer profit margins, they have also
tied CSI scores into incentives and arbitrary factory
initiatives. They already made the dealers sign an
additional franchise agreement to be able to sell
light trucks and now they’re tightening screws once
again.
Last month I made a
statement that Ford motor Company didn’t have a lot of
executive talent on the bench. I used the fact that
Brian Kelley is considered qualified to run
Lincoln-mercury Division as a case in point.
On a positive note, William Clay Ford reached into the
well and pulled Allan Gilmour out of retirement to
serve as CFO and vice chairman. Gilmour has actually
been operating Chrysler and Ford dealerships in
Vermont for the last couple of years. It’s good to see
Gilmour back with Ford, unfortunately I get the
feeling they are looking at him to help negotiate
cost-cuts with suppliers.
It’s late Sunday
night and my wife retired hours ago. Just a sip of
Remy Martin left in the snifter sitting by the
keyboard. There really isn’t that much news
happening...nothing earthshaking. All in all, things
are looking more positive for most of the players.
Swirling that last sip of Remy in the lamplight I
wonder what Ron Zarella and Jacques Nasser are doing
right now? I sure miss them.
In the near future
however I see storms on the horizon as the battles
heat up between aggressive cost-cutting manufacturers
and suppliers who have been squeezed beyond reasonable
limitations. I was reading that an incredibly large
number of the major parts and assembly suppliers for
the industry were in Chapter 11 bankruptcy protection.
If this trend continues, we’ll continue to see botched
launches and safety and quality recalls as a recurring
problem. I listened to Bill Ford’s remarks at the
stockholders’ meeting and I shake my head in
disbelief. Whatever happened to building great quality
cars and letting the dealers sell them without
interference? These people are so preoccupied with
dicking around with all of these goofy side projects
they can’t achieve focus. If we keep pressuring the
suppliers we’ll eventually collapse the entire
industry.
Yes, Humpty Dumpty
appears to have taken a Great Fall...and...Sadly
enough...he doesn’t even appear to realize he’s
broken.
More Food
For Thought
You know me. I always see the humor in things that
some people might have thought were serious. Well,
this is no exception...last week I came across a
recently released report by CNW Research, a company
out of Bandon, Oregon run by a friend of mine named
Art Spinella.
The survey was a study on the importance of features,
factors and benefits to retail customers. It actually
put a weight on what is most important and what is
unimportant to a consumer when making a buying
decision on an automobile.
What do you suppose was the number one heaviest
weighted factor in a consumer’s decision-making
process according to the survey? (By the way, I
believe Spinella and his firm to be highly reputable
and honest unlike some other Powerful firms in his
industry)
Get this...The number one heaviest weighted
decision-making factor was “The size of the monthly
payment”. See size does matter. The monthly payment
was rated number one by 87.4% of consumers...safety
was a minor concern at 45.1%. Even cupholders were
rated higher than safety.
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