Interesting article.

I never understood why the American car manufacturers were so stubborn when it come to seeing what was right in front of them all along....no surprise that 3 of the last 4 cars I owned consisted of two Hondas (both tough little cars that lasted a long time and had decent gas mileage), a Saturn (a dependable car that made buying one an enjoyable experience) and the best of all was the Audi V6 diesel I owned in the UK, which managed to be luxurious, comfortable, and so economical that I could cross the whole of the UK on one tank of gas. (The same car was featured on "Top Gear" one night, doing that very thing.)

US car manufacturers could stand to take a lesson from the fashion world when it comes to knowing when its time to jump off a bandwagon (particularly if you helped feed it), anticipate its demise, and be ready for it beforehand with new and appealing offerings in the wings. They have clearly failed to do this, and failed to be prepared with any viable, immediate alternatives.

SUV's were the rage for awhile, but they were also the laughing stock of those who were environmentally inclined to shun them, seen perhaps as a stubborn but arrogant symbol of "what problem, there is no problem?" thinking.

For all the claims of being a necessary family vehicle, the great majority of the time I saw them driven by single people, in the city. (And often 4x4 to boot, which defied all logic, since most shopping centre parking lots are reasonably smooth terrain.)

I realise my tone is pretty sarcastic, but having spent a total of zero days in the automotive industry, having no expertise whatsoever on the market, I can only say I - and countless other Americans - saw ALL of this coming, so why didn't those "in the know?"

In the end, there certainly IS a problem upon us, and its now imperative to make the choices that allow us, be consumer or company, to best weather them for the benefit of ourselves, the planet, and generations to come.

That they claim to not see it now is nothing short of staggering.

That their pattern probably will not change until it is absolutely beyond their control to prevent it, though, is not particularly surprising. There is a certain arrogance in the course of action GM and other auto manufacturers took in these past 2 decades.

Arrogance..whether out of ignorance, or out of stubbornness, is a luxury that neither they, nor we, can any longer afford.

Why not link to the Volt? Toyota is going to produce a Lithium Ion car by 2010 (announced at the Detroit Auto Show). Don't dismiss something just because it doesn't prove your point. That itself is cognitive bias.

Thanks for your post, Darrell...if you look at the bottom of my blog you will find a link to the Volt. I do think that when this car comes and if the technology is proven truly reliable (and the price point is right), G.M. may well be able to recover its footing. Let's hope.

Perhaps history is laughing at us all for buying into the multi-generational myth that what is good for GM is good for America.

If you check Wikipedia, you can find an interesting story on how GM achieved its vaunted status by destroying (with the public's permission) one of the great public transport systems in the world.

From Wikipedia
In 1921, GM lost $65 million, leading [GM President Alfred P.] Sloan to conclude that the auto market was saturated, that those who desired cars already owned them, and that the only way to increase GM's sales and restore its profitability was by eliminating its principal rival: electric railways. At the time, 90 percent of all trips were by rail, chiefly electric rail; only one in 10 Americans owned an automobile. There were 1,200 separate electric street and interurban railways, a thriving and profitable industry with 44,000 miles of track, 300,000 employees, 15 billion annual passengers, and $1 billion in income. Virtually every city and town in America of more than 2,500 people had its own electric rail system.

Subsequently, according to Wikipedia:
General Motors, Firestone Tire, Standard Oil of California and Phillips Petroleum formed the National City Lines (NCL) holding company, which acquired most streetcar systems throughout the United States, dismantled them, and replaced them with buses in the mid 20th century. After all was said and done, and all the streetcar systems gone, GM was convicted of violating the Sherman Antitrust Act, fined a whopping $5,000. Each executive was ordered to pay a fine of $1 for a conspiracy to force the streetcar systems to buy GM buses instead of other buses (but not for dismantling the streetcar systems, which were also being dismantled by non-NCL owned systems).

Seriously, can a company who would cynically destroy a valuable public resource be trusted to produce anything that will meet real needs today?
Good bye to bad rubish I say. Its about time GM gets what it deserves!

For several decades the story has been that financials are more important than manufacturing. The smartest and best in any business go into the business side. GMAC is more profitable than GM the car company. The way to advance in GM, as in any business, is not to make better cars, or better software, but to produce more profitable ways to finance the things you make. The consequence is that the things we make are worse, and valued less. The economics blog http://angrybear.blogspot.com often has a lot of discussion about this, backed with an impressive amount of economic data drawn mostly from US government sources.

Isn't this exactly the situation in which small car manufacturers got a foothold and changed the market? As I recall, the automakers in US were making those huge gas guzzlers and the oil shock occurred!! First time is mistake, second time is......

I have no sympathy for the US auto industry. They are a classic example of industrial "de-evolution". Their organizations have grown so large that they are unable to make strategic changes and unable to adapt to external signals or simulus.

Toyota has been creating factories and jobs in America because they can and because the wage differential balances against the costs of shipping and importing. They beat the US auto industry in their own backyard.

I have purchased Toyotas since the 1980's and the US auto makers could never figure out why I (and millions of others) would make such decisions. Here is a clue... we optimize our consumption based on quality, price, and safety.

The US auto industry has been holding on to dwindling market share in the under-educated red states attracted to God, guns, and guzzling trucks.

Can it be that we focus too much on gas prices? Relative to other increases in expenses, I suspect that we do!
http://www.youtube.com/watch?v=KG3C47NILjA

It would have been wonderful if GM & Ford had produced hybrids, or practical fuel-efficient models based on some other technological innovation. But I doubt that most of Toyota's or of Honda's profits come from their hybrids. What seems most devastating to me is that American car makers long ago abandoned any effort to produce reasonably efficient conventional automobiles able to compete with imports on the basis of quality and price. I suspect that it's this inability to compete, or preference not to, that backed American car companies into the strategic cul-de-sac of SUVs in the first place--and that caused their willful blindness to the obvious upward pressure on the price of fuel.

If this is correct, then there's very little reason to think that GM, Ford and Chrysler will be able, or will chose to compete in the market for hybrids or other ultra-efficient cars, once those technologies become standard. Instead, I suspect that leadership will look for some other niche market that they can parlay into 'value-added' profits just long enough for a few upper-level managers to cash in their options and retire in style.

GM is not alone, of course. And this criticism is not very well founded. The consumer is shocked at the gas prices - what does that tell us about what the consume expected?

Consider the American consumers who, according to the subsequent blogs, say they knew gas prices were going up and yet continued to purchase SUVs. Consider the American consumer who knows the consequences of smoking, or drinking, or poor eating and exercise habits, and yet continue to pursue life choices with very dire and highly predictable consequences. Why would we assume that individuals in groups, even very large groups such as GM, would necessarily make rational decisions based on available information? The idea that the market is somehow going to act in its best interest is just not born out by the evidence - on the consumer end OR the producer end.

GM was not too far off in its predictions of gas prices AND the likely response of the American consumer to those prices. The consumers still wanted what they wanted. And if consumers were so prescient about gas prices, then why did they continue to buy what they buy?

First, the fact that consumers are shocked by the current gas prices tells us that they certainly were NOT expecting what they see now. Second, why would they think that prices would go to this level? The workings of the commodities markets are very complex and it would be rather miraculous if the average consumer had examined all the evidence and determined the current prices were about what could be expected. The depreciation of the dollar is accounting for nearly 40% of the price increases in the US market, and where would the consumer have gone for that forecast? These price increases do not seem to be driven by supply and demand, so why would the consumer (or GM) bet on them?

It is too easy to conclude that smart people in GM were smart and blind. Not if you believe that GM people are like the rest of us and have their own best interests in mind. Nor is it honest to criticize the GM management for not anticipating gas prices that no one else anticipated (not eveny Toyota) and that no one has yet to fully explain. There are always "prophets" who after the fact can point to their own wisdom in forecasting hurricanes, floods, famine, and gas prices. After all, someone has to have guessed right in the normal distribution of guesses.

I was in agreement with JimK right up until the last paragraph where he showed his liberal elitism by stating:

"The US auto industry has been holding on to dwindling market share in the under-educated red states attracted to God, guns, and guzzling trucks."
- Posted by jimk

Can't we have this conversation without making derogatory comments about people from different backgrounds in different parts of the country. I haven't seen the statistics (and I bet JimK hasn't seen them either) but I would be willing to bet that the majority of these "gas-guzzling" SUV's and trucks are purchased by educated folks from the suburbs of America.

GM has been attacked by every journalist, consultant, stockholder and worst of all the market ...all explaining GM's failures in endless detail...and they still don't get it. I buy GM products out of pity. I own a gm pickup, tahoe and saab, all bought new in the past three years. They skimp on quality then deny warranty; their field people are clueless, their on-line customer representatives incompetent. They treat their dealers like expendable garbage.

Amazingly through all this they maintain the most arrogant, and impenetrable egos. You gotta give them credit for that. Who else could maintain the wrong course for so long, still be afloat and still maintain their kingly demeanor...except GM? If and when GM wakes up from their delusions and realizes they are in the 21st Century, their coffers will be too depleted to do anything about it....and they will become a case study for my management seminars on how not to do things. ssj.

Very important article indeed :
im quite agreeable to jimk`s point of view.let`s just forget about the US market for a moment.
im currently a resident in the third world, where we account for an economic and cost-effective product commodity for our usage.India at presented flaunted with the baggages of Toyota and Honda or not to forget Hyundai.Why is it so that when India becomin such an important consumer market its as such that Honda and Toyota ruling the market.recently it is of a source that US is blaming India and other develpoed countries for the price rise of oil due to their consumption increase.
US should LEARN to anticipate and not stand on a stubborn ground.they try producing Hybrid vehicles that a certain class will be prominent enough to purchase.
this fuel issue has been hopping around the branch since quite some time.the gradual increase in the price was an indicator itself for the forthcoming story.how can GM bench upon prevailing periods of their Golden days.....Gm-Those were the days my friend !
Japanese cars will be plundering not only US but the WORLD market because of the economical bench it produces through its machine.
Price,COst,Comfort and Environment friendly is what demands out of people lately.
G.M,are you listening by any chance to these blogs ?

It is not the first time which Japan manufacturers leading the innovation technology. They are watching today and tomorrow for innovation. that is the point which american automakers have to change. Additionally, I strongly recommend that Americans have to find new solutuons for the future, don't copy the technology which is developed by the others. For example, American automakers have big power and they shoul find another alternative to hybrid technology which is developed by Japans.

I hope American automakers can do it...

To Mr. Cragin, PH.D.

You give too much credit to GM (that they couldn't see this coming)...) They missed the clues in the 1970's when the Saudi's put their dipstick in us the first time. GM has enormous amounts invested in economists, econometric software and high priced executives charged with scenario planning. They missed it because denial is GM's motto. They have been in denial for 30+ years. You have to admire a company that can survive that long with their heads in the sand.

To say that nobody else got it either, assigns even more mediocrity to GM. With the smarts at their disposal then as market leaders 30 years ago, think where they would be today if they had "got it" even if nobody else did; they should have "got it" especially if nobody else did..that's what market leadership is all about: seeing what competitors don't and acting on it...ie., Toyota, Honda, etc.

As a marketer for the past 40 years, (and a consultant to various businesses including GM automobile dealerships) I can tell you first hand that any company that allows half their market share to erode over a 30 year period of time is in serious denial.

By the way, I also have advanced degrees. In case you haven't noticed, egos are out of fashion this season.ssj.

I serve the automotive retailing industry full time and my observation is that this most recent swing from larger vehicles to more fuel efficient vehicles has happened in a very short period of time. SUVs still had strong sales through 2007 and early 2008 in spite of the gas prices. Yes, it is important for manufacturers to anticipate market changes and I concur that GM failed to anticipate this most recent one. I also agree with a previous poster - they did have some reason for continuing to manufacture trucks and large SUVs: it was because they were selling. Now trucks and large SUVs are no longer selling and, in failing to anticipate the market, the true test of the manufacturers will be how fast they can retool and respond.

Finally, US manufacturers have made significant improvements in quality and, before you decide that a Honda or Toyota is the only vehicle worth considering, check the recall and warranty repair statistics for a GM, Ford or Chrysler.

Mr. Cragin Ph.D...

Gm has been in denial for thirty years thats why they have lost half their market share. To say GM is not alone is to say GM didn't differntiate themselves from the the pack. A sure way to go broke. GM was the leader. The fact they didn't act will relegate them to a footnote in seminars based on how not to run a company. ssj.

great article.
gives a broader view of the narrow thinking of some assumed giants in the market, who believe that market can be captured and not be a very part of it.
i wish mr.wagoner understand this before he is forced to.

great article.
gives a broader view of the narrow thinking of some assumed giants in the market, who believe that market can be captured and not be a very part of it.
i wish mr.wagoner understand this before he is forced to.

I agree with Sue. GM sells what people are buying. It's demand feeding.

I believe GM, like so many senior executives in many industries, are very short sighted and fail to plan for alternatives. It's always the EPS on a quarterly basis that makes the decisions, not longer term thinking and planning. GM just got caught big-time.

Interesting statement. Specially as GM also sells card outside the USA. In Europe gas prices are around 1.67 euro per liter. That translates into about 9,5 US$ per gallon.

This implies that GM management does not watch markets outside the USA and/or is not interested in them/

Curious for such a big company.

A. There are engineers and there are engineers -
One set of Automotive Engineers said, way back, if the goal is to get better gas mileage, why load a vehicle with a ton of batteries - it is an illusion that there will be mileage improvement where as actually there won't be any.

The second set of engineers said, there will be improvements due to a) Hybrid technology, b) regenerative breaking, c) Cutting off or, reducing gas input to cylinders based on stop/start and speed and gradients, d) better tyres, e) plug-in option

B. Then there were bean counters and bean counters -
One set said, let us wait until market conditions require as we own more than 50% of domestic market so, people won't have any where to go but buy what we offer - so, sell what we can now so that when the time comes, people will dump what they have and buy our new stuff. We will take 10 baby steps between current gas guzzlers and ideal vehicle. They also argued that EPA will raise the mileage requirements if we bring our technologies too fast to market and we won't get federal grants.

The second set said, we own 50% market so, why not bring our arsenal and be the market leaders and make money as we would like to own the global market. But their voice drowned as the unions and management wanted more profits from domestic markets than ultruism.

C. There are local, state and fedral govt. and there are politicians: They made sure that the city planning will never be conducive to alternatives to car and driver. One question: Why we folk around Europe and rest of the world ? WE CAN WALK - as the shops that carry basics are in walking distance and the place is attractive and practical for walking.

Europe spends on average 30% more money per KM (or mile) of road and their roads average 20 years of life before repairs / rework is needed. Our roads last barely 5 yrs - that means 20% roads are always in repairs - and we forkout 200% more money over 10 years to fill the cracks and holes - making them ugly looking and bad and our politicians are sure that they will get political funds from these filling and road fixing companies.

There are plenty of systemic issues - plainly all lead to the conclusion that there is no leadership and vision and there is greed - so, when can we catch up? Lost time = 20 years therefore, catchup time = 20 years + 10 years (if we are aggressive), so, the year may be 2050 if the dollar is still the world currency otherwise, we will be at the mercy of some other superpower for international aid.

Thanks to all of you for your very thoughtful comments!

John Cragin is right: American post-war consumers have been trained to consume. That's what we do; behaviorally, it's practically now part of our DNA.

It's not a who-guzzles-more-than-whom, red-versus-blue state issue. Consumers in blue states are as greedy as anyone else. I live in Lexington, Massachusetts, the beating heart of one of the bluest of blue states. When I drop my daughter off at school in the morning on the way to work, I notice that most of the parents doing likewise are driving gigantic minivans or SUVs. Small sedans like mine are in the distinct minority. Worse, the neighborhood where I live is rapidly being overrun by monster pre-fab McMansions that are also energy guzzlers.

It's time to ask ourselves: Are we literally driving ourselves into the ground? Will we wake up one morning when gas has hit the $7, $8, $9 or $10 per gallon mark, we can't buy many foods, and we're out of heating oil? Will we then finally say, "enough is enough"?

Now, I'm an idealist, and Lexington, Massachusetts is birthplace of the American revolution. My dream is to make my town the birthplace of a new revolution in sustainability. In my dream, the McMansions are converted to multi-family condos. The old railroad tracks that were paved over to form the bikeway from Cambridge would be restored to run efficient, electric commuter trains. The streets would all have wide, generous bike lanes and the main thoroughfare would be closed to traffic. Knowledge workers would telecommute most of the time. The town would pool its resources to set up windmills and put solar panels on the roofs of the downtown commercial buildings. We would set up communal greenhouses and gardens to feed ourselves. Many towns in Europe look a little like this: they could be our models. What would our world be like if towns across the U.S. did this?

I have another dream: that the oil companies, Big Three and energy firms would team up to develop new, innovative solutions for the massive energy problems we are facing. They could pool their brains and resources to come up with creative ideas. And for starters, I'd make Duke Energy's Jim Rogers, arguably one of the most forward-thinking folks on the planet, the CEO and make sure Al Gore sat on the board.

I know, I know. Dream on....!

A quick note about "demand feeding" consumers. Who is to blame here, G.M. or consumers? This is an old chicken-and-egg question. Does Hollywood make violent movies because people demand them, or have people developed an appetite for increasingly violent movies since Hollywood began offering them? The same question holds for junk food, cars, you name it.....

Either way, I think it should have been clear to the top automaker brass that cheap gas would not last forever. G.M. neglected to plan for this turn of events by putting too many eggs in one big truck-bed; Honda and Toyota adopted a different strategy. There's a lesson here for marketers.

Bronwyn Fryer wrote: "The town [of Lexington] would pool its resources to set up windmills and put solar panels on the roofs of the downtown commercial buildings."

The Town lacks expertise to do these necessary things, but a Lexington municipal electric utility (or "muni", instead of our current utility NStar) would easily do them, and much more to promote massive use of "green electricity".

Lexington's Town Meeting has repeatedly supported legislation now on Beacon Hill to allow new munis in Massachusetts, which NStar -- eager to preserve its monopoly -- has unfortunately managed to block so far. More on this at www.massmunichoice.org

Regarding US automakers, perhaps they are finally waking up: my own son will be
a battery systems engineer in GM's (fast growing) hybrid group after leading the University of Wisconsin-Madison's Hybrid Vehicle Team (www.engr.wisc.edu/studentorgs/vehicle/)...

Patrick Mehr
Lexington MA
patrick.mehr@gmail.com

Prior to becoming a Consultant and General Partner of The Kellman Group I wrote mortgages and was Branch Manager of mortgage NOW inc. in the City of Woodhaven Michigan, the home of the Ford stamping plant. I was given the privilege of a developer is sit in the model home and solicit business in the City of Gross Ile. I wrote a mortgage for a Ford Engineer and he invited to his home in Dearborn. He asked me if I liked muscle cars and then invited me into his garage where he had a Shelby GT 350. After wiping the droll from my mouth I cautiously asked him how Ford went from the glory before us to the economy car that Ford Mustang became in the 70’s. His in the Eye-opening remark stuck with me indelibly. He said it was the polices of the United States Government. Five years later Congress pasted the same polices and the writing was on the wall. Subsequently, the demise of the American automotive manufacturing plants began. Hopefully, there will be a balance in the future; GM is listening they are just pain.

My sentiments exactly. The big three automakers always react to the market when it is too late. They must have known before the gas prices started increasing that their strategies needed to change.

The Japanese automakers are light years ahead of the big three North American automakers. I think GM's prediction was lack of common sense when it comes to anticipating consumer needs. People have not been able to afford big gas guzzlers since the economic climate change with all the corporate downsizings and organization change of the early 1990's. This era should have given the signal that the market was changing, with the consumer switching their tastes to the Japanese fully loaded car for half the price of a North American car. GM still had "build it and they will buy" attitude despite the visible signs of market turndown for a long time.

While the Toyota's Honda's etc were catering to the average consumer, the Big 3 were catering to macho, rich etc to continue to buy their overpriced North America automobiles that are not built to last.

America is not the oly country where large heavy autos are still dreamed of by a stobborn public and an automotive industry that cannot seem to move into the next product that the Japanese and the French seem to have envisaged.

The key being the propulsion system and the power of large oil to maintain there position.

I say keep building the heavy gas gusslers the world will run out of oil faster and countries that invested in electic trains will prosper. The public has the power they merely have to stop purchasing!