Honda Motor (HMC) should have a warm spot in its heart for the Ayatollah Khomeini. If his followers had not overthrown the Shah of Iran in 1979, the company might still be best known for making motorcycles.
By the time of the Iranian Revolution, the small Japanese automaker had won critical acclaim for both its 1973 Civic and 1976 Accord, but when the Shah's fall led to a subsequent energy crisis, suddenly its small cars were in demand. Sales of its four-door version of the Accord and its pseudo-sports coupe, the Prelude, took off. Soon, the company demanded that its dealers build separate facilities for the sale of its products. (Before that, Honda products were often the secondary line for many of the nation's General Motors (GM) and Ford (F) dealers, much as Buick dealers once sold German-made Opels, Pontiac dealers handled British-made Vauxhalls, and Chrysler dealers apologized for distributing French-made Simca vehicles.) The Japanese had finally arrived.
Even though these early Hondas and Toyotas were not without flaws—Hondas had a nasty reputation for fenders that rusted from inside and engines that could stutter from time to time—they delivered exceptional mileage. But the final act that put the Japanese on top came not from their design engineers or marketing departments, but from Washington: In an attempt to help save Detroit, the Reagan White House forced voluntary import quotas on Japanese cars.
What followed was a prime illustration of the Law of Unintended Consequences.
Reagan's Halo Blunder
Instead of giving Detroit time to get back on its feet, the new quotas kept Japanese cars in short supply. Car buyers often had to wait for six months or more to move to the top of their dealer's allocation list for new Accords or similar Toyota (TM) or Nissan (NSANY) products. And waiting created anticipation, which lent a halo effect of mythic proportions to all Japanese products, helping even import cars that weren't as wonderful as our short memories insist.
Reagan's import quotas also led the Japanese to develop whole new lines of vehicles. Because the proposed new divisions weren't named on the quota list, they could be brought to America exempt from Washington's import quotas, returning even greater profits to their corporations. You know those firms today as Lexus, Infiniti, and Acura.
What great irony. Washington's good intentions to save Detroit 26 years ago put Japan's automakers on the map permanently with the American public. Moreover, it happened at a critical juncture: Just five years earlier, the 84 million baby boomers had started turning 30.
In that period, the boomers left behind their '60s idealism; they began to bow to the need for caution and security as they settled down and started families of their own. The only passion from the '60s that this generation never lost was for automobiles. Even today, according to Art Spinella of CNW Marketing Research, the baby boomer generation (those born roughly between 1945 and 1965) outspends the 18-to-49 age demographic on automobiles and automotive services by 3 to 1. That's just more bad news for Detroit, because this generation's final likes and prejudices were formed on its personal chariots during the oil and financial crises of 1979 to 1982.
Changing A Bad Perception
For Tom LaSorda at Chrysler, Rick Wagoner at GM, and Ford's Alan Mulally, the mission of saving their firms is far more complicated than just delivering exceptional products at reasonable prices. The real task at hand is to undo the effects of three decades, in which the Baby Boom generation came to believe that only Japan offered real value while delivering exceptional quality.
Think of the rare runaway successes that Detroit has had in the past 30 years: All support the hypothesis that once the baby boomers passed 30 and had their own families, they increasingly tended toward safety and security. That maturation fully explains the popularity of the 1984 Chrysler minivans and the sport-utility craze of the '90s. An exception has been the success of retro sporty cars brought to market, from the current Mustang (see BusinessWeek.com, 8/15/06, "Detroit Thoroughbred") to the upcoming Dodge Challenger and Chevrolet Camaro, but it's misleading. What their popularity represents is the baby boomers' love of what Detroit once meant to them—not their wholesale or widespread approval of the Big Three's offerings today.
That's a shame. Detroit can no longer just bring great new products to market and sell them. Instead it faces the far more difficult task of changing a perception that this generation has held for 30 years. And when Detroit pulls out its six-shooter to take its best shot, half of the bullets inevitably hit its own feet—when U.S. manufacturers do bring out exceptional vehicles, they often seem incapable of convincing a skeptical public of their real value.
One case in point might be the new Saturn Aura (see BusinessWeek.com, 10/4/06, "Saturn's Awesome Aura"). With a five-star safety rating, a more than competitive price and strong styling both inside and out, it also has the most remarkable ride and drive of any midsize sedan in GM's history. In a direct comparison against the newest generation of the Toyota Camry, the Saturn is the superior car for those who truly appreciate a fine automobile. But it's not the automotive reality that matters to the car-buying public these days, it's the perception.
A Star Becomes a Crown Vic
In this case, the public believes that Toyota usually has the superior resale value and quality (an accurate assessment). And your neighbors will understand if you park a new Toyota in your driveway, but might question your logic if there is a new Saturn on the block: It's considered the "safe" decision to get a new Camry, even if it means you walked away from the superior Aura. The proof is that Saturn sold just over 5,800 of its new Auras in December; Toyota sold almost 40,000 Camrys.
Chrysler had a different situation when it introduced its outstanding 300 sedan, for it had managed to do the impossible. Suddenly the car-buying public became enthralled with this new sedan out of Detroit. Many Chrysler dealers quickly found more than a few high-end, imported, luxury sedans being traded in for a 300. And it wasn't just the car's sharp looks that attracted the public's attention; the 300's superior ride and handling characteristics won over some of the most jaded buyers in the marketplace. The rush of impulse buyers didn't echo as strongly when the platform-sharing Dodge Charger debuted, but that's irrelevant now; Chrysler has managed to start killing both cars in the market without realizing what it has done.
That's because in many areas of the country we are now seeing police departments and taxi companies purchasing fleets of Dodge Chargers. There is no surer way to destroy a car's image or its retail value than to sell it for taxis and squad cars. Looks like Chrysler has taken its halo automobiles and turned them into another Crown Victoria.
Delusions At Ford
One never knows which Ford Motor Co. is coming to play in the big game. Is it the Ford that can create some of the most remarkable and value-laden products in its history, such as the
current generation of F-Series trucks (see BusinessWeek.com, 4/19/06, "America's Favorite Pickup"), the Fusion, the new Explorer, or the Mustang? Or is it the Ford that brings out the 500 sedan, the indescribably strange Freestyle, and a new minivan that was $5,000 pricier than the benchmark Honda Odyssey?
Like Chrysler and GM, Ford has proven that its people can create products that will stand up to anything else on the market and often prove to be exceptional buys, cars anyone should be proud to own. But when Ford starts suggesting that a minor makeover of its 500 sedan could make or break the company, that's delusional. Ford's major problem is that the company comes out with a great car that should be a home run and only manages to make it to second base in terms of volume. Or they strike out and suggest that if the batter just changes his uniform he might make it to first base the next time out—and that's going to determine the entire ballgame.
Now Ford is downgrading its Lincoln Mercury division, allowing it to share floor space with Ford dealers in major markets. Thirty years ago, Eagle Lincoln Mercury in Dallas held the position as the largest volume Lincoln Mercury dealership in America, but last month John Eagle called it a day; he sold his franchise to a local Ford operator and his location to a BMW dealer. Ford's latest decision defies logic: How can they believe that real luxury-car buyers are going to shop at a Ford dealership for a new Town Car (or its future replacement) instead of going to a standalone Lexus store for a new GS?
This shows how oblivious Detroit is to the real process of selling automobiles in America, because the smartest car salespeople know that to close more deals you have to offer value. Therefore, even if someone should enter a Ford store looking for a Lincoln Navigator, he or she will likely leave in the less expensive Ford Expedition. That diminishes the image of the Navigator (and Lincoln Mercury) with the American car buyer.
The Importance of Brand
This takes us back to 1979, when the Japanese started brand differentiation. They demanded that, instead of offering their products as secondary choices in U.S.-brand stores, all their domestic dealers build and maintain separate branded facilities to retail their lines. Today, even though GM, Ford, and Chrysler all have more truly exceptional vehicles to offer than the Japanese did 28 years ago, they are in the process of consolidating their stores.
No longer do we have separate Chrysler and Buick dealerships, but Chrysler Jeep Dodge, Buick Pontiac GMC—and in the future, Ford Lincoln Mercury.
Last year I was speaking with Bob Lutz, vice-chairman of General Motors, who was justifiably excited about the introduction of the Buick Lucerne. Bob is one of the real heroes of the industry, but that day I cautioned him on his enthusiasm. I simply pointed out that one of my personal friends, who had recently added Buick to his Pontiac GMC store, was excited because he figured it would improve his overall volume by 20 vehicles a month. I said, "Bob, how are you going to save Buick when dealers think 20 cars a month is great?"
It has been 30 years since I have owned an American car. Today, I believe, many of Detroit's products are equal to or superior to the imports—but Detroit still hasn't addressed the fact that it must overcome three decades of prejudice. It's not about great cars; it's the fact that perception isn't following reality. And as to how to change this serious fundamental problem, Detroit remains clueless.