The US automotive industry is still trying to make a comeback. It is making a comeback to profits, to higher level of production volume and to heavy discounting practices in dealerships. The demons of the big three manufacturers are still alive and kicking. The race towards volume and plant utilization is back on the table. The neglect of true value considerations in the design of their cars and in the deployed technologies lead to the traditional squeeze of the automotive suppliers, to short cuts in quality, and to massive recalls today.
Ford, GM and Chrysler are not getting it. Their focus on cost excellence is preventing the automotive supply chain to create and capture value that the end consumers might be willing to pay for. The old fashion OEM purchasing tactics and negotiation processes favor commoditization, standardization and isomorphism. The end result is that most US models are like plain vanilla ice cream. They lack innovation, jazziness and excitement. The OEM’s clearly missed the opportunity through the latest economic storm they experienced to make a differentiation break, to modify their go-to-market approach, and to transform their business and pricing models. In other words, they missed the opportunity to learn and to make the strategic shift in their DNA from cost to value.
The celebrations might be short lived. Another crisis will emerge and they will find themselves in the same situation i.e. cutting cost, laying off workers and seeing their profit evaporating. One of my favorite expression is “never waste a good crisis” to make the necessary changes. The Big 3 did miss that opportunity. Still the future is bright for them and their focus for the next ten years should be on:
– Increasing innovation in their vehicles design and selling valuable functionalities to consumers at higher prices.
– Partnering with best-in-class tier automotive suppliers who create innovative solutions and might be willing to share some of that value with the OEMs.
– Re-educating consumers on why a car is a long term investment that requires some thinking outside of the pure price they pay and on the quality/price relationship.
– Transforming the dealership business models by stopping the bulk ordering of cars that have to move fast at whatever cost. Currently, in the US, buying a car is a short term exercise done under time pressure. In other parts of the world, cars are ordered and it might take up to 3 to 6 months to get them delivered. The reduced working capital pressure might help dealerships take the time to sell the features and benefits of the vehicles and to educate consumers who are willing to wait and willing to pay.
– Leading the technological transformation of the car business and regain the leadership from the Germans and the Koreans. Stop bringing technologies to the lowest common denominator thus killing any major technological gap. Stop price pressuring innovative suppliers who have brilliant technologies. Rather leverage their capabilities to create excitement in the marketplace.
Right now, the Big 3 are in celebration mode and are rehiring workers to respond to growing demand. We all rejoice that the automotive industry is going to produce and sell over 16 million cars for the first time in a long while. I wish we could all celebrate the acceptance of more value and innovation orientation at Ford, GM and Chrysler. For the first time in a while, the average price of sold cars went up over the past quarters. This might be a good sign for the industry. I remain convinced that the cost and commodity DNA of the OEM purchasing and engineering community might prevent further progress in an US industry that badly needs it. It is time to embrace innovation and value management at the core of the car business in the United States. The Germans have done it and they have taken the world by storm with high profit margins and great growth rates.
Be bold. Join the value-based revolution.
image credit: earth-ad.com
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Stephan Liozu (www.stephanliozu.com) is the Founder of Value Innoruption Advisors and specializes in disruptive approaches in innovation, pricing and value management. He earned a PhD in Management at Case Western Reserve University and can be reached at firstname.lastname@example.org.