DETROIT -- The practice of building too many vehicles and pushing them on dealers and consumers almost killed the domestic auto industry and should never be repeated, the head of the nation's largest dealership group said today.
Mike Jackson, AutoNation Inc. CEO, likened the production push approach practiced by the Detroit 3 for many years to a vampire sucking blood from the domestic auto industry. He said companies should be careful when adding capacity, and flexibility should be built into production plants.
“It would have been a tragedy and travesty had the American auto industry been swept away,” Jackson told the 2011 Automotive News World Congress. “Flexibility is the key to going forward.”
Jackson said the problem was that all costs were fixed and that the factory, dealers and labor unions shared the blame. He was particularly critical of retroactive, stair-step new-car incentives that factories offer dealers for reaching certain sales goals.
He said the incentives harm customer loyalty because they lead dealers to resort to irrational pricing in order to report sales to the factory and win the incentives.
Instead, he said, vehicle prices should be set closer to transaction prices. Then incentives should be used to fix a specific problem or manage the life cycle of a product within reason.
Jackson, who described himself as a Republican capitalist, praised the bailouts of General Motors and Chrysler, saying the federal government through its auto task force was the only entity large enough to fix the industry's problems. It killed all industry sacred cows and “no one was spared and everyone was treated unfairly.”
He predicted the industry would sell 12.8 million vehicles in 2011, with sales picking up throughout the year and coming closer to a 13-million rate by year end, aided by an increase in subprime lending and leasing.