Tuesday, August 02, 2005

Detroit is Finished!

The US auto manufacturers desperately need a brand overhaul, and a serious analysis of why they are in the mess they are. As a Honda lover, I'll tell you why - quality, or rather lack thereof. But rather than address that as well as the obvious image problem they suffer from, Detroit has chosen to throw employee discounts at every Tom, Dick and Harry. This simply won't work. You will see plenty of enthusiasic headlines like this one - Big Three automakers post double-digit gains: Popular employee-pricing discounts deliver blowout results, but in the end what matters is profits.

According to MSN's Moneycentral, Ford and GM's net profit margin's are 1.5% and -0.6%. Put simply, on average, on that $25,000 car you buy, Ford was making all of 374 bucks after expenses, while GM was actually losing money! Clearly with margins that small, increased volume from employee discounts aren't going to help. No wonder analysts have been revising earnings estimates for the next quarter down - Starmine estimates analysts have reduced Ford's earnings by 57% in the last month, and GM's by an astounding 341%! YOW!!!

Granted, what Ford and GM may be trying to do is get rid of inventory, and this is a reasonable goal. But there appears little plan to what the impact will be on brand value, or indeed how to improve brand value! Detroit needs to think quick, or perish like many a business before.

2 comments:

Anonymous said...

You'll like this essay:

http://paulgraham.com/usa.html
[and some others under http://paulgraham.com/articles.html]

Quality (good design) is everything to me, as a consumer. I recently got myself an iShuffle and started buying and listening to music via iTunes. It is really cool! And this from someone who hasn't bought a CD in the last 8 years!!

I also bought a lamp for my room from IKEA -- great design and not that pricey either!

-Sriram

Karthik Narayanaswamy said...

The PaulGraham site article was great! I really do agree with his observations. On the topic of the crisis in Detroit, here is another columnist who seems to agree with me.