The Detroit debacle…

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With GM ready to hive off its Hummer operations, Chrysler no longer showing much interest in its Jeeps business and Ford rethinking its F series vehicles, there is serious shift in American car buying patterns. It was just a few months back that the Detroit three were still so much infatuated with the SUV dream. Today, after back breaking losses year after year [GM, FY 2006 largest global loss making company; Ford, FY 2007 largest global loss making company], a future based on SUVs is beyond the realm of even dreams. Of course, the Audi Q7, Porsche Cayanne Turbo S, Cadillac Escalade range of SUVs would continue ad infinitum, for the obnoxiously snobbish class they attract would continue to demand these cars, irrespective of fuel prices. But a mass strategy with SUVs? I’ll then need more space on my shuttle. Since the first quarter of 2005 [when the US SUV sales plummeted a whopping 20-30%], sales have only been declining!

There is a fare amount of insecurity among the end consumers, who have found their money incomes depleted with respect to the purchasing power. As per a survey by National Association of Convenience Stores, 45% of American consumers reported a decline in their spending power because of rising petrol prices. While 19% wanted to buy a more fuel efficient car, an astonishing 13% had already reduced their driving on the back of $3/ gallon gasoline prices! As a result of the earlier oil shocks, consumers have increasingly adapted an ‘aftermath attitude’ and eventual demands for automobiles have sagged significantly through out the world.

Even though the idea of hybrid cars is generally believed to be more of a lifestyle concept rather than being that related to fuel efficiency, a total of 38,214 hybrids were sold in the American market alone in March 2008, proof that even fashion is now related to oil. Hybrid SUVs such as Ford Escape Hybrid had initially gained popularity but not for long, since better alternatives are beginning to hit the market. Though oil prices will eventually come down [on a downward spree, they had broken the $90 mark per barrel on October 6, 2008], the mentality of consumers – who were once used to $50 per barrel prices and who would be extremely averse to future vagaries of oil price hikes – would remain focused on fuel efficient cars. While the Japanese per se have succeeded with their fuel efficient taglines and the prejudices they had been associated with through out their history, the Americans still seem to be reading the Big Moose chapter in Archies too many times for comfort. But if misery loves company, one should say there’s at least one tubelight in the land of the rising sun fighting to switch itself off... er, whatever! Basically, if Mitsubishi Outlander is a top seller, I’ll eat my cook’s food... Is this going to be printed?!

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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