Chrome Sweet Chrome

When Detroit used to host the Grand Prix downtown, the family used to go for Free Prix Day on the Friday before the race.  Nancy and I would bundle up Kate and her buggy and head into the city for greasy food and glimpses of very fast cars twisting through the city streets.  The best part was just east of the Cobo Arena entrance where the turbocharged F1 racers would turn, twist and then dive under the tunnel to Atwater.

In 1985 when we did this sojourn, I had just picked up one my favorite cars, a silver Thunderbird Turbo Coupe with the 5-speed manual transmission.  When we were finished for the night, I drove along Larned next to Cobo Hall, and accelerated onto the Lodge with my window down.  I had the car in a low gear and I heard the turbo spool up as the soft screech echoed off the concrete wall just off the driver’s side.  The combination of power and control in that car was intoxicating as I quickly reached highway speed and powered home from there.

This was the first of many fond memories of that car which featured a relatively small 2.3L four-cylinder engine, but mated to the turbocharger it made “sufficient” power.  I was also fond of the car’s fuel economy, because despite its pulling power, I was still able to average about 25 mpg with it.

The Turbo Coupe managed to be a popular trim series for the Thunderbird.  If I remember properly, the “sport” version with its anthracite gray exterior trim, soft gray lower bodyside and GTI-inspired thin red stripe penetrated about 20% of Thunderbird market.  To be truthful, it was probably the trim, which made the body look like it was machined from billet stock that sold the car rather than the turbo engine.  The Mustang that featured the same powertrain as an option did not fare nearly as well, for example.  But still, that whistling turbo made the best sound as the car would fairly jump in response to a downshift and stab on the throttle.

And the best news is that those days are back.  At least for the turbo and the small displacement engine.

It is ironic that the recent flurry of sales in the first half of March, kicked off by Toyota’s 0% incentive campaign, is seen as some sort of recovery and good news for the industry.  At its heart, the sales rate that raises the Seasonally Adjusted Annual Sales Rate (SAAR) to the mid-13 millions represents a lot of demand pullahead, as all sorts of incentives have done in the past.  While SAAR has been trending on a slow rise of late, blips like the Clunker’s advance in August have been followed by dips, such as the post-Clunker’s September.  As long as Toyota is looking to intentionally accelerate its sales, and as long as other OEM’s play along, then we will see this so-called “recovery” in sales.

This isn’t to say that all “Clunker” sales were a waste of taxpayer’s money, nor that all of the sales over a 10.5 to 11 million SAAR will need to be paid back.  What the latest round of incentives is tapping into is the enormous reservoir of demand for cars and trucks.  The sales rate has been at about a 10 million SAAR for about a year and a half, while the scrappage rate runs between 13 and 14 millions.  The industry is upside down by at least 5 million units in replacements alone.  You can add in another 2 or 3 million based on the “natural” sales rate of 15 million units in the U.S.

The various incentives shift the demand curve, bringing some of the pent up demand back into the market, despite the overall economy.  The lesson?  There are sales to be had, the buyers are out there.  Most of the sales will have the effect of pulling ahead buyers who can buy in the current economy, but a percentage of the unmet need reservoir will be part of the equation as well.  How much? It might be the old 80/20 rule, or less.  But once incentives end, there will be a dip.

We have a different dynamic, though, in comparison to the days of CAFÉ-fueled and volume building incentives of the past that boosted sales to near 17 millions in the past.  First off, buyers are being coaxed in an environment of a market with a vast unmet need.  Secondly, we have incentives led and sparked by desperation on the part of Toyota.  Thirdly, and most importantly, the incentive war’s advantages are now held by the Detroit 3, especially GM and Chrysler, who can outbid the Japanese firm due to their post-bankruptcy cost advantages.  This changes the game.

This past week’s Automotive News’ feature story was how GM’s new old CEO Ed Whitacre wants more sales – NOW!  GM dropped a bit in the rankings as Ford eked out a 429 unit sales lead over GM in February, again according to Automotive News.  The last time Ford bested GM, no matter by how small a margin, was in the 1990’s, and due to GM suffering through a UAW strike.  Shouting the equivalent of “heads will roll!” Mr. Whitacre has shuffled GM’s deck chairs again, rearranging both the organization, mysteriously separating sales from marketing, and the people, removing some divisional heads (figuratively) and elevating Mark Reuss to the sales lead, along with manufacturing and engineering operations.

Of course, ever since Marcus Buy-from-us Finance-with-us (say it quickly and it almost sounds Latin) had too many chariots and oxcarts on the forecourt of his sales lot along the Appian Way, car and truck sellers have tried to “immediately” increase sales.  This is true whether the horsepower is supplied via internal combustion or real horses.  To date, only a few tricks will be found up the sleeves of Ed Whitacre’s tunic.

The good news is that “yes!” sales can be increased.  Ford increased sales by 43% over last February, GM itself gained 12%, despite scuttling four entire divisions, both popular and unpopular.  Hyundai, Kia, Subaru, VW and Audi all have been on a tear as well, increasing volume in a market still in the doldrums, as January’s SAAR was still only 10.5 millions.  So for sales to really go up, an economic recovery would certainly float all boats, and SAAR might recover to be nearer to the historic 15 million unit sales rate.  With a much lowered breakeven, GM would certainly benefit.  Absent that growth, GM, like everyone else, would need to improve its relative position vis a vis a world of competitors.  

So, how are sales improved?

Kent M. Keith, 61, is CEO of Greenleaf Center for Servant Leadership, a Westfield, IN non-profit that advises groups and individuals on practical and ethical ways to help others.  Kent, according to Jeffrey Zaslow in this past Wednesday’s Wall Street Journal, has been a do-gooder since his days as a Boy Scout in the 1950’s.  So intent on saving the world with his altruism, garnering merit badges and organizational praise, young Kent’s father pulled him aside on day and said, “Kent, don’t help the old lady across the street unless she wants to go.”

The point of Jeffrey’s discussion with Mr. Keith were summed up in four points with the headline, “Before You Decide to Save the World”:
 Throw away your assumptions about what you think people need.
 Ask recipients what they think might work.
 Focus on ideas that may be more effective than the obvious project
 Be willing to be anonymous.

Young Kent’s father’s advice and the life lessons he took away might serve as guide posts for leadership for the Detroit Three, recently chastened Toyota, and any number of enterprises, automotive and non-automotive alike.

I might sound a bit altruistic myself, but see how effective these rules are when we see GM offering to bring back 661 formerly cancelled dealerships back into the fold.  No doubt, GM and its government handlers were only trying to help, but found themselves making the damnest decision to actually hurt themselves in the market place, pursuing an assumed benefit in reducing their dealer body.  The action was so out of bounds, that even Congress could see it didn’t add up.

A further guideline to keep in mind would be, “Only the humble have true self-confidence.”