Saturday, April 09, 2005

MG-Rover, the American Auto Industry's Future?

It's the end of an era for Britain. Many news articles have talked of MG-Rover being the last major independent car maker in Britain, but I would argue it stopped being independent several years ago when it was purchased by BMW. These last few years of "independence" were really only continued selling of old designs. The lack of money never allowed a new generation of vehicles to emerge, and the result was just a dying company selling out the last of its models until they became so outdated no one would buy them.

I see a lot of similarities between the American auto industry and MG-Rover, specifically GM and MG-Rover. GM doesn't have enough money right now to make new car models, at least RWD ones. The Zeta platform was cancelled to make room for new SUVs, a market that has been and will continue to diminish for the next century because of the end of the petroleum age.

There's also a habit of American manufacturers refusing to upgrade the engineering that supports their cars. Ford's Crown Victoria can be traced back decades. GM harnesses 4 speed automatic transmissions to twenty year old iron block v6s. Ford upgrades its two decade old Mustang, and it sells out. GM refuses to do anything so radical.

All the Big 3 and MG-Rover had executive cultures that were against change. The American reason for refusing to change probably had more to do with an obsession for short term profit, wringing out every last cent out of an aging platform. The British reason for doing it was probably just a cultural refusal to change anything. But the end result is the same, more modern vehicles from foreign competitors.

MG-Rover at the end tried to bring in vehicles from the 3rd world, specifically from Tata, an Indian manufacturer. It didn't work. South Korea is hardly a third world country, but GM's importing over of the Aveo from there is a similar idea. It seems like a good idea, but it just won't make the same kind of profit a homemade little car would. It also shows that GM doesn't have the ability to create a cheap small car on its own, the same problem MG-Rover had. The more you import for others, the less likely you'll be able to make it on your own. Small cars are a very competitive market with low profits. To not invest in this area and depend on others is very risky.

What can GM and the rest of the American auto industry do to avoid the fate of MG-Rover? Even a liberal government like the one run by Tony Blair, is refusing to completely prop up the company. And that's right before an election. The Bush administration will not be a friend to a blue state industry, especially in an off-election year. So the American auto industry better tread carefully to avoid bankruptcy. The Big 3 should invest in areas where they know the future will be. Invest in new car platforms. Don't think mediocre designs atop old platforms is competitive. It isn't. It never has been. Be daring in design. And don't depend on a roadster to rescue your company. It didn't work for MG-Rover with their MG-TF, it won't work for GM with the Solstice and Sky. It's a small market niche, that holds profit potential, but just isn't enough to maintain an entire company. Spend the money where your competitors are spending it: hybrids, small and midsize sedans. Not SUVs.

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Friday, April 08, 2005

Build Here!

While perusing the net, I ran across the websites of the Mercedes Benz US Factory and the BMW US Factory. They're both well done, and the Mercedes factory will give you guided tours. At no point was either company secretive in protecting the mystique of a European marque, something you would think would be important to being a luxury brand. At these respective companies vehicles that are primarily for US consumption, SUVs, and roadsters, are what is made.

To me, building cars in the US, that are primarily for US consumption is a no-brainer. Why?

1. You immediately have a captive buying audience. Like every auto factory in the US, the workers have a sense of pride about what they make, and are peer pressured into purchasing that marque. Give them and their families employee discounts, and you just sold several thousand of your own vehicles.

2. You have an immunity to currency fluctuations. With the dollar's value tied to fuel prices, the longterm outlook for the dollar is weakness. That's going to kill European manufacturers who are stuck with a strong currency. The solution is to move building here.

3. You avoid tariffs. Obviously building here would avoid that. Another plus.

4. You pay your workers less. A Southern worker, who hates unions, will always make less than a unionized German worker, and probably work harder too. The Japanese and Germans have taken advantage of this, but they could still do more.

5. You have less fuel costs for transport. Obviously trucking a new car is less expensive than trucking and shipping across the Atlantic or Pacific.

6. Your workers will not strike. Even in Mexico, with incredibly low labor costs, the workers have been unionizing. VW which makes many vehicles in Mexico, has faced unionizing workers, and that means shutdowns. Because of a cultural dislike and distrust to unions in the South of America, you won't have this problem.

So to me the benefits are tremendous. They can also be a selling point. Since Americans don't care where a car is made, as long as it works well and looks good, you could sell the vehicles as being loyal to America and the American worker. It's basically one of the last selling points American manufacturers use. The Japanese have muscled in, but have not advertised their presence in America, though they've been here for decades. Increase that knowledge, and I guarantee you'll get some sales from xenophobic Americans.

On a side note, I never made mention of DeLorean's passing. I read his book, "On a Clear Day you can see GM" and made mention of it earlier in this blog. DeLorean rubbed people the wrong way, but under his administration we saw great success, and vehicles that were ahead of their time. I believe his personal sports car, his namesake, was ahead of its time. It's a shame he'll be remembered more for his failures than his successes like the GTO. I hope someone makes a film to his life, I think it'd do well. See you in a few days.

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