Are U.S. Automakers really building cars no one wants to buy?

by Bill Zervakos
December 2008

There is a lot of hyperbole about how bad the vehicles coming out of Detroit are; ergo American automakers are in trouble. Are American automakers really building inferior products? Let’s look at the numbers from November of 2007 through November 2008 for a few of the key players:

Chrysler, down 47% Nissan, down 42.2% General Motors, down 41.3% Toyota, down 33.9%
Honda, down, 31.6% Ford, down 30.6%

You’ll notice that Ford is down less than anyone else and Nissan sales are even worse than General Motors.

No doubt labor costs for unionized shops are higher than those of non-union shops but are labor costs the reason for the collapse in sales? Leaving aside all the differences in compensation between the U.S. makers and importers, I don’t see how any manufacturer can exist for long with over 30% losses in sales.

We’ve clearly seen the incompetence of CEOs’ on Wall Street, seemingly without consequence or accountability and certainly without any oversight, given billions of dollars specifically, we were told, to loosen up credit for consumers. Instead they chose to use those billions to pay dividends and bonuses while buying other financial institutions, choosing to do nothing about making money available for loans. To then watch Congress address the CEOs’ of the U.S. automakers as though they’re inept seems a bit self serving.

It’s important to point out here that Ford President Alan Mulally has been with the company for just over 2 years, Chrysler CEO Robert Nardelli has been with them since 2007 and GM CEO Rick Wagoner took over the controls of General Motors in 2005. So while there were problems in the past, linking the ills the industry faces today exclusively to these executives performance is short sighted, and appointing a car czar is not the answer.

Rick Wagoner of GM has acknowledged that allowing the EV1 to be eliminated was not the right thing to do. But GM, Ford and Chrysler have made huge strides in developing electric vehicles, some that will be on the road by 2010. They’ve been doing this without government or a car czar telling them they had to. But here’s what we must remember: Detroit built what people were buying. It’s true that some gas guzzlers were incentivized but in a capitalistic society businesses are all about making money and big vehicles were money makers. Proof of that is the 22% increase in truck sales this November, with gas under $2.00 a gallon, over July sales when gas was $4.00 a gallon. The consumer drives the market and will continue to do so.

With legislators pontificating and blustering about how outraged they are with the big 3 CEOs’ and the media right there with them, talking about how irresponsible Detroit has been in product development, without laying out all the facts, it’s no wonder that people aren’t buying American cars. The facts are that there were several automakers, including some importers, that made some pretty bad cars in the past, but today everyone is building pretty solid vehicles. The prevailing perception is that American cars aren’t as good, yet in a Consumer Reports study as far back as 2006 provided results showing that the Ford Fusion and Mercury Milan outperformed the Honda Accord V6 and the Toyota Camry V6 in reliability studies. Interestingly those same studies indicated that people will still buy the imports. Perception is true even if it isn’t fact and when a false perception is promulgated, change takes even longer.

So, are U.S. automakers really building bad cars? Not at all, and if people would do their homework and not buy into all the negative hype, they’d be very pleasantly surprised with what’s coming out of Detroit.Other countries are supporting their automakers and we should do no less. If we were in a normal economy and automakers weren’t manufacturing the right products, then the market should be allowed to correct itself. That isn’t the case today.

Generally speaking, I’m not for government intervention but this is a critical industry for America and the three CEOs’ weren’t the cause this financial crisis and they can’t fix it. But allowing any one of the heretofore big three to die could create a tragedy of epic proportions. The facts are, until the consumer starts buying again, all automakers are in peril.