PETER BROWN

It's a panic — but don't panic

Peter Brown is associate publisher and editorial director of Automotive News.
Face it, we're in a panic. Guys who three months ago were bragging about their Hummer are trying to trade the unsellable bad boy for a Prius or Malibu.

Every auto company is trying to squeeze another mile per gallon out of its cars and trucks. Automakers are tearing up their future-product plans and reassigning engineers to design new, fuel-efficient vehicles. And they're trying to conserve cash.

June's sales were a catastrophe almost across the board — except for Honda. Buyers are panicking. Car companies are panicking. Dealers are panicking.

I've received some e-mails from dealers complaining that Automotive News has been horribly negative lately. I called one of them, a small domestic multibrand dealer, and asked him how his business was. "We're pretty much down to selling only used cars now," he said.

Here's just about the only good news: This too shall pass. Like bubbles, panics never last. But they're a good time to reassess strategy and culture.

The culture of each of the Detroit 3 has been about profiting from the tastes of the consumer. The consumer wants an SUV, you give him an SUV.

But what might the consumer need tomorrow? The stunning run-up in the price of gasoline to more than $4 a gallon changed everything overnight — and probably in the long run, too. And some companies were caught flat-footed.

Everyone has known for years that oil prices would rise ... someday. Unlike the finance people, the product folks at some companies — especially the Detroit 3 — didn't hedge. The bucks were in trucks.

A year ago, the Germans dumped Chrysler LLC, saddling it with fuel economy laggards and no real compact car. Now Chrysler has to subsidize customers' gasoline because it can't compete on mileage. Meanwhile, General Motors is looking to dump Hummer, a bubble brand.

After three decades as the nation's top-selling nameplate, the Ford F-series pickup has fallen behind two Toyota and two Honda cars to become the fifth-best-selling vehicle in May and June.

While the marketplace gets flung around like a crash-test dummy, companies should avoid joining in the panic. In the short run, consumers will calm down a tad. And in the long run, some smart auto executives will figure out how to deliver what the consumer wants.

Honda is instructive. Honda's culture is to produce superb and efficient engines and vehicles and never to waste anything. A V-8? Why? A big body-on-frame SUV? Not for us.

By contrast, Nissan and Toyota stepped into quicksand with big trucks. They entered that segment at the end of the big-truck era.

Toyota built way too much capacity for its new Tundra pickup. It's an expandable 300,000 units, on its way to 400,000. Oops.

The energy crisis changed everything.

In the next few months, new-car buyers will take a deep breath and look for what they need. Fuel economy will be a big part of their calculation — but not, as it is today, almost the only part. Remember, we're flirting with a recession. This too shall pass.

Panic is not the answer, even for the cash-critical Detroit 3. But others' panic should focus the mind. A clear-eyed look at a future of expensive fuel — and a clear-eyed critique of how the corporate culture failed in this case — could lead to a brighter future.

You can reach Peter Brown at pbrown@crain.com

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