Chrome Sweet Chrome

Last week’s Chat discussed “Crossovers” as a category.  A couple of key thoughts emerged from the readers.  One was posted by Dan Sherman, who thought that my notion that:

 “In the end, to me the real category is “utilities”, and the choice of unit-body (and car-based) or body-on-frame (and truck-based) is just a design and engineering decision made by the OEM.”

Was pretty insightful.  That is, that the distinction between “SUV” and “Crossover” is pretty slim.  Most vehicles deemed “crossovers” are unit bodied, but there are plenty of unit bodied SUV’s, too.  Nearly all Jeeps since the mid-eighties, for example.  Dave Feinbloom, posting on the Linked In Automotive Product Planning Professionals group said:

Is a Subaru Forester "as much" of an SUV as a Ford Explorer? Will the new unit body Explorer be "as much" of an SUV as the earlier body on frame versions?   Manufacturers can say what they want and undoubtedly will have some influence steering customers, but when it comes to purchasing the old adage "the customer is always right" will still apply.

Dave is making a “usage” argument.  When real customers start using the term, then we, as OEM people, need to understand want they might mean.    In some advertising, OEM’s are referring to “crossovers” as if it’s a category, hoping to create a category in consumers’ minds.  My own take is that OEM marketers have latched onto “crossover” as a term to denote an “SUV-lite”, that is, an SUV without the burden of excess size and with the weight benefits of unit-body construction.  But as so many “SUV’s” are unit bodied already, the distinction is pretty artificial.  

Still, there is “crossover fever” out there in the OEM world, and that has issues and implications all its own.  As many people are now shying away from the tall, imposing truck-based SUV image (think “Hummer”, “Escalade”, “Navigator”), the Crossover has come to provide an alternative for people who need the people and cargo carrying options of a utility, but don’t want to be painted with an anti-environmentalist brush.  And there are OEM’s in these days of political correctness and government ownership who would like to excuse themselves from that image as well.  On top of image issues, there’s that shootout at the CAFÉ Corral coming up very soon, where the total vehicle fleet will be tasked to average 35 mpg.  And 2016 is tomorrow for automotive product planners.

My piece last week included a long list of recent crossover product duds and soon-to-be duds as OEMs rush headlong onto the maw of crossover vehicles, that is, Frankensteinian half-car, half-truck creations and may not live and be embraced by the market.  The Aztek and Acura ZDX seem like high-profile duds.  These are vehicles that are just too odd to find a home in customer’s hearts.  But then there are products that should have hit that heart of the market, but have been cancelled, replaced or otherwise abandoned at the doorstep of automotive history.

Three promising, seemingly mainstream crossovers that didn’t make it were the Ford Freestyle, the Buick Rendezvous, and the Cadillac SRX.

Perhaps nothing is more confusing to understand than the so-called “crossover” segment in the auto industry.  What is a “crossover”?  What products make up the crossover segment?  Is the crossover segment its own segment at all?  Can anything be a “crossover”?

Before the nomenclature settled down, there was some movement to call these car-truck hybrids “hybrids”, but that quickly died down as hybrid electric powertrains took over that turf.  Still, what is a crossover?  The origin came in as CAFÉ pressures forced OEMs to try to lighten up their body-on-frame SUV’s and as the OEMs scoured demographic and psychographic trends to discover the “next big thing”.  After all, what was the original short wheelbase, four-cylinder, K-car based Chrysler minivan than the first “crossover”?  

The case for the Caravan is strong, as it fits the idea of a truck-like body on a car-based, unit body platform.

Once OEM’s began experimenting with truck-like bodies on car-based chassis, then the sky became the limit, and many crossovers were brought out, only for many of them to come crashing to earth.  Let’s take a short list of formerly offered crossovers.
- Ford Freestyle/Taurus X
- Cadillac SRX (Mk. I)
- Pontiac Aztek
- Buick Rendezvous
- Buick Terraza
- Pontiac Montana
- Chevrolet Uplander
- Saturn Outlook
- Saturn Relay
- Saturn Vue
- Chrysler Pacifica
- Pontiac Torrent
- Mazda MPV
- Suzuki X-9
- Suzuki XL-7

Yet despite all the crossovers that have crashed and burned (in the market) the segment is supposedly a “growth” segment.  This goes back primarily to the willingness of OEMs to keep investing in product after product as long as its labeled a “crossover”.  Factories will pump out the nameplates mentioned above, as well as:
- Jeep Compass
- Jeep Patriot
- Dodge Caliber
- BMW X6
- Acura ZDX
- Subaru Tribeca
- Honda Accord Crosstour
- Toyota Venza

All of whom are in God’s waiting room for failed automotive ideas.  Does anyone know why?

The mantle of leadership in the U.S. auto market is very much up for grabs.  The sales results from March clearly demonstrate how much the situation is in flux.  The “Big Three” for March, at a corporate level, according to Automotive News were:
- General Motors, with 188,011 sales
- Toyota Motor Sales, with 186,863 sales
- Ford Motor, with 183,425 sales

In a market that sold a whisker over 1,000,000 vehicles in March, these results show these companies within a bumper’s length in a race around the U.S. auto market track.  While these three vie for the lead, American Honda trailed at 108,262 sales, Nissan was at 95,468, Chrysler fell to 92,623 and up and coming Hyundai-Kai checked in with 77,524.

While Ford had a slight lead over GM in February sales, each month has its own character.  In this case, March is characterized by a 41% jump in Toyota sales, as that embattled company provided strong incentives to lure back its formerly loyal buyers into their showrooms.  GM has to be watched carefully, as their press releases trumpet an over 40% improvement in the sales of surviving brands of Chevy, Cadillac, Buick and GMC.  Overall, though, jettisoning both strong and weak brands yielded just a 21% overall GM corporate year over year improvement, a bit better than the 16% overall market improvement.  Ford, while fading from the lead from February, was still 40% better than March 2009.  I may not be a mathematics genius, but if GM keeps improving sales at a 20% clip, and if Ford improves by 40% every month, Ford may be seeing GM in its rear view mirror well before the year is out.

Analysts predict that Toyota will relax their incentives soon, as rebates and coupons largely cheapen the brand, reduce resale values, and reduce profits.  40% year over year improvements will probably not carry forward.  GM has been more aggressive in matching Toyota’s rebates, making their sales improvement a little disappointing.  Given that GM announced a post bankruptcy $4.3 billion loss, despite the benefits of debt restructuring, lowered labor costs, and the help of the Obama administrations best business minds, GM’s engine seems to have developed a bit of a miss.  Ford, on the other hand, has managed to eke out a small profit for 2009, and has seen strong sales gains despite that its new product blitz has not yet hit our shores.  Frankly, 40% gains every month may not be sustainable, given production constraints and the still fragile economy, but as new Fiestas and Focuses arrive, Ford may benefit from its business leadership tailwind more than GM or Toyota despite the new products expected (mainly Buicks and Chevy’s from GM).

The story not being pursued quite yet is the tale of how Steven Rattner and Ron Bloom pulled the plug on Chrysler’s developing alliance with Nissan-Renault and gave the operation of the company over to Sergio Marchionne.  The attentive reader might have already added up Chrysler’s 92,623 sales with Nissan’s 95,468 and realized the total was a healthy 188,091, enough to have “won” the March sales crown.  Instead of charging to the lead of the American market, we have Nissan-Renault trying to sort out a much more modest agreement with Daimler this past week, mainly centering on developing a four seat Smart product.

“It’s an outrage after all the sacrifices we have taken and the pay he gets.  His pay is coming out of our concessions.”

- Gary Walkowicz, UAW Local 600 committee man, Tuesday March 23, Wall Street Journal

The headline read “Ford CEO Pay Rose As Profit Returned”.  Unfortunately, Mr. Walkowicz is carrying over residual feelings of hurt and confusion.  One hopes that his quote was a bit of grandstanding for the membership and not his authentic misinterpretation of economic and business realities.

Mr. Mulally certainly doesn’t need me to defend his salary, compensation plan, or job performance.  In fact, he’s done all right on his own.  When asked at the Congressional hearings if he, like Rick Wagoner and Bob Nardelli, would take his salary down to a symbolic $1 a year, he simply said, “No, I’m good.”  And the overall reception of his performance by Wall Street, Main Street and most roads and by ways has been pretty positive.   After all, Ford stock traded at a low of $1.26 in November of 2008, on the eve of the congressional hearings.  Last week it had improved over ten-fold, at $13.57.

What I wish more people in this State and Industry understood was that not all management pay comes off the backs of the oppressed working class.  Now there are cases of head-scratching executive bonuses as employees are tossed out, shareholder value is being destroyed and customers flee from showrooms.  More about that later.  Unless there’s a plan by shareholders or the Board of Directors to deliberately shrink a firm and destroy their investments, such compensation schemes are suspect at the very least.

Fundamentally, though, whether in good times or bad management, labor, and even salaried people all get their compensation from one source – the people who buy their products.  Some compensation is more indirect than directly received via company revenue.  Mr. Mulally, who has provided so much good news of late, is a good example on how this works.

To the surprise of nearly everyone, Ford made $2.7 billion in 2009.  This was at the same time that GM and Chrysler were going bankrupt and each received billions in both loans and equity from we, the taxpayers.  This was a stunning turnaround by any measure, and Mr. Mulally certainly cashed in.  His total compensation rose from nearly $17 million in 2008 to a staggering $17.9 million in 2009, a huge 6% jump.

So, given the huge turnabout in the firm’s fortunes, Mr. Mulally hardly made AIG or Goldman Sachs bonus money.