Sad State of Affairs for Detroit's Big Three

With the recent financial woes of the Big Three automakers, the question that bears answering is "how did we get to this point?" How did these companies fall into such financial crisis so quickly? Several thousand recently laid off or bought out blue and white collar workers are asking the same questions. The answers to these questions are simple but politically incorrect. Here is my personal analysis of the downfall of the Big Three --

Poorly Designed Products -- Conservative vehicle designs coupled with lackluster reception by the American public are the main reason that these automakers have stumbled badly. Large gas gulping SUV's and bland mid-size sedans were a Big Three staple during the 2002-2008 time period. Having been privy to research done by these automakers, they knew that these vehicles would fall flat before launch but launched them anyway. Apparently, market researchers failed to convince senior executives of the failings of these products. The product czars at most of the American automakers have very strong personalities and don't like to be told that their products are not on target.

Overpriced Labor -- About a decade too late, the Big Three is rapidly downsizing its' blue collar payroll and hiring new lower priced labor to build its products in the U.S. Due to severe pressure from the domestic automakers, the UAW has complied with their requests for a two-tier wage system to save jobs and protect their older workers. The next battleground will undoubtedly be retiree pension and medical benefits. According to some sources, in the U.S. we have 3 retired UAW members (drawing a pension and getting medical benefits) for every active UAW member. Long term, this current situation is untenable. The fate of white collar workers is even darker. Without the protection of any union, the ranks of white collar employees are quickly dwindling.

Long term, I think Chrysler will find a partner in Hyundai, Renault-Nissan or another major automaker to save what's left of the company. General Motors will likely emerge from this current situation as a much leaner and aggressive organization, with a strong emphasis on new products geared towards the American populace. Surprisingly, Ford seems the most reluctant to change and seems to be stubbornly sticking with its current product lineup and is intent to keeping Mercury alive despite poor sales and a lackluster product lineup.

Here's hoping that they all pull out of the current maelstrom and survive to fight another day.

Dead Brand Walking

In recent statements to the press, Tracinda's Jerry York quipped on "what he would do" if he were running Ford Motor Company, namely sell off or axe Volvo and Mercury. Tracinda is looking to invest heavily into Ford after failed forays at Chrysler and GM. After some thought, he may be onto something here but these two brands are in different situations. Since my time at Ford in the late 1980's (and even before that), Mercury was always the red-headed stepchild -- product-starved, little advertising or marketing and a revolving door of brand managers passing through the Ford executive training program. Everyone had to do a stint at Mercury, ask Bill Ford. The Mercury situation is little improved twenty years later. So why does Ford keep them around? That's easy -- they don't want to piss off their dealers (no rocket science there). It has little to do with loyal Mercury customers or orphaned product lines. It has everything to do with potential lawsuits, bad press and massive dealer buyouts. GM went through this organizational trauma when it shutdown the ancient Oldsmobile brand earlier this decade -- it was a painful and very expensive bullet to bite.

Volvo is another breed of brand. Volvo has a distinct and loyal fan base, quirky but fun vehicle designs and a premium European cache. For full disclosure, I have to say I am a Volvo owner wannabe -- so I own a Saab instead -- and have been wanting to buy an XC90 for the last four years to no avail. Volvo dealers are also a different set of dealers. Often nestled in tony suburbs of major metro areas, these dealers have pockets of repeat buyers and a cool product to sell. As an organization, Ford has abused Volvo just slightly less than Mercury. In the 1980's and 1990's, Volvo was headquartered in the affluent suburbs of NYC (Northern NJ) before joining their Premium Automotive Group brethren in Irvine, California for a few years. Now Ford is moving Volvo back to NJ to be near its largest buyer base in the Northeast US. Volvo has also been on the low end of the totem pole with marketing and advertising dollars for the past few years.

So what would I do if I were Mr. Mullaly? Shutdown Mercury ASAP, it's been a dead brand walking for twenty years. Keep Volvo but give them some space. Let them design their own vehicles, market and sell to their core base and basically let them be.