Thursday, July 24, 2008

America's 12 Cheapest Cars, Where is the Big 3?

From Forbes, America's 12 cheapest cars (#1 is the Kia Rio, pictured above, base price $10,890). Note that there is only one Big Three vehicles among the 12 cheapest cars, the Chevy Aveo, which is actually built in S. Korea by GM Daewoo.

As consumers switch to cheaper, smaller, more fuel-efficient vehicles, it seems like the Big Three is "missing the boat".... again.... See cartoon below:
HT: Juandos and Spencer.

17 Comments:

At 7/24/2008 10:45 AM, Blogger juandos said...

Well for me personally I have a problem with ALL these cars....

I couldn't wedge my big a$$ in any of them even at gun point...:-(

 
At 7/24/2008 12:49 PM, Blogger Walt G. said...

Why would you sell hamburger for a profit of $1 each when you can sell steak at a profit of $10 each? GM made a business decision to sell trucks and SUVs because of a profit-margin strategy dictated by Wall Street and its institutional investors. You can agree or disagree about how smart that will be in the long run, well maybe that long-run scenario is here now, but it was a well-executed strategy nonetheless. You don’t really fail if you hit the bulls-eye of a target of the one you were aiming at just because someone else decided you should have shot at a different target after the fact.

What happened? GM simply was not ready to handle a market with quickly and exponentially increasing gasoline prices. Big companies don’t and can’t change overnight. GM’s future success, however, will depend on how well they can provide customers with cars they want and need at a price they can afford. GM has problems, there can be no doubt about that, but I think they have good chance of future success as a smaller company than they were in the past.

 
At 7/24/2008 4:29 PM, OpenID sethstorm said...

I see this as 12 cars to avoid, and that GM/Ford/Chrysler aren't going to be leaving anytime soon.

As far as I'm concerned, Detroit hasn't missed with cars designed and developed domestically. Captive imports and Chinese aftermarket junk parts - that's the only place GM ever misses.

Juandos:
That's why I'd rather go w/ GM. They don't have a point of making smaller cars and underpowered engines. I'd rather buy a rebuilt Fiero with a 3800 stuffed into it, than any of these cars.

As for the snub on maintenance, I see that as people not taking care of the car.

 
At 7/24/2008 5:26 PM, Anonymous QT said...

Juandos,

Kudos to your honesty and your great sense of humor. :)

Walt g,

Good analysis. Can't argue on the econ.

GM does know that Americans like comfort and power. That formula worked until energy prices spiked.

GM has many challenges including high labour costs, huge health care costs for retirees and the notorious job bank (not sure if they have managed to get out of this or not - you can probably tell me). GM has also been very slow to react to gas prices which have been rising over the last 2 years.

Peter Drucker wrote about the tendency of a successful organization to continue to do what it did in the past rather than evolving to meet changing customer tastes. The same thing happens to political parties and generally, he estimated that it often takes about 10 years of wandering in the wilderness before the organization is able to refocus. It is an interesting, albeit disquieting observation.

Hope that they turn it around soon.

 
At 7/24/2008 6:46 PM, Blogger juandos said...

sethstorm says: "That's why I'd rather go w/ GM"...

I'm with you amigo... I drive a 2002 AeroStar and I love it!

I've never owned a Pacific Rim Rocket and probably never will...

Its NOT that they are bad cars (quite the opposite actually) but they just don't fill the bill (or fit!) for me...

qt says: "Kudos to your honesty and your great sense of humor. :)"...

Can't lie about it...:-(

6' 7" @ 345lbs, well petite doesn't quite describe that mass...

BTW I like you thought that walt g's comment was also on the mark...

qt your comment: "GM has also been very slow to react to gas prices which have been rising over the last 2 years" is exactly right...

BUT considering the size of GM I wonder just how quick they can induce change?

Hey walt g, in your experience just how hard is it for a car company the size of GM, Ford, or Chrysler to change its direction?

Financially its got be a nightmare to retool factories...

I'm guessing a change in upper manangement mindset isn't the easiest accomplishment either, am I wrong?

 
At 7/24/2008 6:52 PM, Anonymous Anonymous said...

qt:

"Turn it around soon"?

I remember that in 1971 Nixon put tariffs on Japanese cars and put an imbargo on US sales of soy beans to Japan. As we know now the car tariffs didn't work and the Japanese decided that Brazil was a safer supplier, ie the Brazilian soy bean industry.

Then in 1974 there was an interview with the president of Buick. He said, "We've learned our lesson. We are going to make cars that the American people want." Buick still isn't making cars the American people want.

The trouble with the US Automobile industry is that they aim for the current target not what it will be in five years thus they are always behind.

Also, Toyota isn't doing that well, either, contrary to the headlines. Free Cash Flow on a current basis is low and they have negative growth (hear me right) in this most important financial metric.

The automobile business is a crappy business.

 
At 7/24/2008 10:43 PM, Anonymous QT said...

Juandos,

Turning around a company the size of GM is a bit like tacking with a cruise ship. It is progress that employees no longer report to 2 bosses (Source: Wall St. Journal).

With regard to girth, I really would like you to live forever because I enjoy reading your posts. Carrying that extra weight around is very hard on your health. It is your choice but, hey, I'd prefer you to look and feel great...and give the libertards the occasional dose of whop-ass. :)

Anon,

One can but hope. There are still a lot of folks employed by GM.

 
At 7/25/2008 6:46 AM, Blogger holeydonut said...

What's ironic is that all those cars have higher fully accounted profit than all the small cars that are made by the domestic-3. This occurs in spite of the huge tariffs handed out and relatively expensive shipping costs.

And it's not that they're using third world sweatshop labor to force cheap cars into the USA market. The Mazda3 engine and final assembly occur in Japan and has sustained good volumes throughout its product life so far in the USA.

The important thing to consider here isn't whether or not the vehicle has the high margins, it's whether or not the business that provide these cars have developed a global strategy that ties together all facets of the supply chain and distribution chain to deliver profitable results to the automaker.

All of the domestics decided it was too much of a hassle to set up a presence to deliver the volumes necessary for a global small car. Of course the Big-3 could build the small car, but they would do so with such apathy that their resulting product was extremely poor in comparison to the alternatives. So customers in other parts of the world shunned the sub-par products.

Have you ever seen the Toyota Cavalier clone? These poor efforts were used as excuses for why the Big 3 could not compete in the global arena. But it's silly to just give up on the first attempt - especially if the first attempt was poorly executed and no care was given to success.

Ford remains the only American automaker that has successfully developed a model to deliver small cars in a global market. Unfortunately they didn't engineer those small cars abroad to be homologated for the USA. But at least they've established competency in that business segment and it could be argued they will have a much easier time developing their next small-car programs with the USA in mind.

The Chery/GM partnerships in China do not count. The GM/Korean re-badges in Europe do not count. Chrysler's 300/Sebring joint ventures in China do not count. I'm talking about stand alone business entities that are fully equipped to deliver the products customers want around the world and actually make money in the process.

 
At 7/25/2008 7:05 AM, Blogger Walt G. said...

Juandos asked “Hey walt g, in your experience just how hard is it for a car company the size of GM, Ford, or Chrysler to change its direction?”

I’ve spent a lot of time researching the auto industry the last few years. I try to keep an open mind, but sure I’m a little biased against what used to be the opponent--GM. The UAW and GM simply cannot be opponents in the globalized marketplace and survive. We are in this together. I suppose, I’ve evolved.

In answer to your question: In addition to about $1 billion, it takes 2 to 3 years from concept to launch for a new vehicle. That holds for a vehicle with a profit of $1000-$1500 each (small car) to one with a profit of $10,000 each (loaded trucks and high-end SUVs). What would you do if it was your money?

Look: Everyone knew the cash cow had to come to an end sometime, but most of the industry experts thought $4 gasoline would not happen as quickly as this year. Consequently, companies whose business models were predominantly in small cars had the jump on those who did not.

We’ll see how quickly GM and the UAW can adjust with their backs to the wall. I’m hopeful. I see the sense of urgency that’s required for a successful future where I work.

 
At 7/25/2008 9:05 AM, Blogger OBloodyHell said...

An old quote from my database, presumably from the late 1980s:

It's as big as two rooms, needs a fuel station every kilometer, costs a lot of money, and you had better watch your rearview mirror because you may see the fender falling off.
- The Japanese impression of American cars, according to J.E. Steinhagan, a GM Japan executive. -


=============

> GM made a business decision to sell trucks and SUVs

Walt, the problem is that they have virtually eliminated their current designs for small, efficient cars. This puts them at an evolutionary dead end, kind of like the manufacturer who decided to concentrate on making only buggy whips in 1895.

Given the lead time in changing designs and re-tooling, it will take them a long time to switch to where the market is, unless they happen to have a saleable design in another country which they can port to here without massive mods to make it pass US regulations.

That's the problem with the Big Three, they have no longer term sensibility, or they would have realized that, sooner or later, the price of oil was going to shift buyer preferences.

I'd note to you that the signs were there already -- they got jammed up with minivans when $3 a gallon triggered the switch back to the more fuel-efficient station wagon designs. That should have been a wake up notice that they needed to add fuel-efficient lines to their product mix.

Manufacturing is going the way of Agriculture where product margins are concerned -- you can't expect to just sit back and rake in the dough, you have to be fast and nimble and flexible in order to meet changing demands quickly enough to keep on top of those narrow margins.

Either the executives in auto mfging catch onto that, or they are one with history.

 
At 7/25/2008 9:09 AM, Blogger OBloodyHell said...

> I'm with you amigo... I drive a 2002 AeroStar and I love it!

I drive a 1990 300zx with 145k miles on it.

It's doing 4000 rpm in 4th gear at 80mph.

No carrying capacity and mpg isn't great (but gas would have to be 2x what it is NOW for me to care that much) but I knew when I bought it that the latter would be my attitude and on those rare occasions when I need the former that's what rentals are for.

 
At 7/25/2008 11:28 AM, Blogger Walt G. said...

obloodyhell,,

Yes, it would have been nice to have a crystal ball. In business, timing is everything.

GM's business model worked for a long time, and the people who really call the shots (the largest investors) are loathe to quit riding a race horse before it dies. You need to remember two things: 1) Autos, and market mix, were always cyclical before now, and 2) Few experts predicted $4 gas this year.

I’ll stay with my original assessment that the UAW and GM will be able to change, and they will be around for a while. That might be wishful thinking, but that’s how I plan to approach the problem.

 
At 7/25/2008 11:44 AM, Blogger OBloodyHell said...

> 6' 7" @ 345lbs, well petite doesn't quite describe that mass...

I had a friend who played for the Ball State basketball team in the late 90s -- At 6'11", he had a Mitsubishi sedan, but had to remove and relocate the seat rails further back. I suspect that any low-priced car will not target tall people (large ones, well, I've seen all too many 200++ pound women getting into Chevettes to think that big people -- as in "round" -- can't fit into compact cars. I'm put in mind of the scenes in Snatch with Tyrone).

 
At 7/25/2008 11:57 AM, Blogger OBloodyHell said...

> I’ll stay with my original assessment that the UAW and GM will be able to change

Oh, I'm not saying that they won't survive, just that they will be hurt and bad.

I'm also saying that, by eliminating the low-end entirely, and the "fuel-efficient" end entirely, you risk becoming like Pandas, which only eat one species of bamboo -- the first blight that kills bamboo comes along, you're screwed. High gas prices are that blight. Human organizations should not paint themselves into corners like that, esp. big enough ones that they don't NEED to specialize that tightly. An obvious choice would be to design such a vehicle for THIS market, but design the more expensive regulatory-required elements so they can be pulled OUT and thus it can be built for foreign markets without losing th ability to make and sell it here if need be.

That requires management forethought, which I argue to you that the Big Three have been woefully deficient in for over 40-50 years. And it has steadily cost them a huge share of a market that they should have a massive advantage in.

I would point out to you that, quality-wise some of the highest-rated cars are ALSO foreign made. So somehow, these companies manage to produce both high-end, expensive vehicles (trust me, the 300Z was no slouch, and still isn't, nor is anything by Acura, if you want a sedan), AND low-end economy models.

So they managed to offer BOTH Filet Mignon AND bubba burgers to the clientele (crap, anyone who buys a Prius is a moron: It offers exactly the same fuel economy and performance characteristics as the Honda Civic with a VTEC engine had 10 years ago, at only 2x the price).

Why can't the Big Three manage the same?

 
At 7/25/2008 12:31 PM, Blogger Walt G. said...

obloodhell asks: Why can't the Big Three manage the same?

That's simple: They have a different business model that worked for a long time along with an approach to specialization of a core business where you are good and profitable. Namely—trucks and SUVs. Long-term thinking is difficult to achieve when all of your success is measured by how well you did in the most recent quarter.

I see elsewhere in this blog where gasoline is at $3.50 at gallon in some areas of the country. Do you suppose $3 gasoline and a renewed truck market is a possibility?

 
At 7/25/2008 4:24 PM, Blogger juandos said...

qt says: "Carrying that extra weight around is very hard on your health"...

Hey! I'd like to say its because I'm 'big boned'...:-)

I think in part we are all to one degree or another a victim of sorts to our genes...

I would be considered both short and light weight compared to my mom's uncles, aunts, and cousins...

Strange, eh?

Still working on it though...

Your earlier comment: "GM does know that Americans like comfort and power. That formula worked until energy prices spiked"...

Exactly right from where I sit...

Still works for me... I just drive a heck of a lot less...

holeydounut writes: "Have you ever seen the Toyota Cavalier clone? These poor efforts were used as excuses for why the Big 3 could not compete in the global arena"...

You know h at one time Ford U.K. was turning out some very popular cars back in the seventies and eighties and they were all over EuroStan...

I used to rent them a lot when traveling over there... Somehow that design Ford had over there never quite made it to domestic shores...

walt g in answer to my question says: "In answer to your question: In addition to about $1 billion, it takes 2 to 3 years from concept to launch for a new vehicle. That holds for a vehicle with a profit of $1000-$1500 each (small car) to one with a profit of $10,000 each (loaded trucks and high-end SUVs). What would you do if it was your money?"...

Geez!

obloodyhell writes: "Walt, the problem is that they have virtually eliminated their current designs for small, efficient cars"...

Interesting... Funny but locally in the St. Louis, Mo area (home of a GM and a Ford plant) there's quite a bit of air time on television a radio by GM talking up their fuel efficient vehicles...

Haven't looked (not interested enough to look) but it makes me wonder what their definition of fuel efficient is?

Further on obh says: "I had a friend who played for the Ball State basketball team in the late 90s -- At 6'11", he had a Mitsubishi sedan, but had to remove and relocate the seat rails further back."...

Been there, done that, bought the t-shirt... I had a VW Micro bus (made in Monterrey Mexico) in the mid sixties where moving the rails was easy because the floor and the rails were actually designed to be moved...

I don't think we've seen that in cars for at least that long...

Hey obh, isn't that 1990 300zx a Nissan product?

That's a pretty sporty piece of work if memory serves...

walt g says: "Few experts predicted $4 gas this year"...

Are you saying these experts believed Nancy Pelosi?!?!

Just kidding...:-)

You further say: "I’ll stay with my original assessment that the UAW and GM will be able to change"...

Me too! I'm hoping like hell they can get it together and get along...

Auto employees on both sides of that line do make up a pretty fair percentage of people who fly somewhere for vacation or whatever...

 
At 7/26/2008 4:15 AM, Blogger OBloodyHell said...

> Hey obh, isn't that 1990 300zx a Nissan product?

That's a pretty sporty piece of work if memory serves...


Yep. And I bought it when gas was $2 a gallon and less.

Funny, but I knew even then that prices may (would) rise, but I like being able to know I can pull out and get into a lane quickly without getting my front and rear bumpers pushed together.

I'm not complaining at all about prices, and the price would have to double from current levels before I'd worry overmuch about mileage. The actual additional expenditure on gas for an average driver is a fraction of the cost of either breaking a lease or even selling a car and buying a new one. (I paid mine off within a year when I bought it [$10k] and haven't had to make a car payment for over five years, with concommittant reductions in required insurance, as well)

Fuel-efficient cars are for people who are already in the market for a new car. With a few rare exceptions, anyone who trades in their current car solely because of gas prices hasn't done the numbers -- and that includes people who own Hummers and Escalades.

 

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