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Marginal: The Industry

If you’re like most people, when you attended parties during this just-passed holiday season, chances are you didn’t show up equipped to do work. Those of us who do what I do for a living, obviously, aren’t like most people. (Tell you something new, right?) But let me explain...

If you’re like most people, when you attended parties during this just-passed holiday season, chances are you didn’t show up equipped to do work. Those of us who do what I do for a living, obviously, aren’t like most people. (Tell you something new, right?) But let me explain...

During the waning weeks of the year, the auto companies typically hold parties for the reporters, writers, editors, talking heads, and others who chronicle their activities. These are generally rather subdued affairs, in that the attendees are in coat and tie or other appropriate attire and there tends not to be uninhibited dancing on tables. During these parties, in addition to the ranks of PR people, there are company executives mingling. The ostensible point of that is to allow the execs to interact with the press in a somewhat more informal setting than is the norm. Be that as it may, a certain percentage of the invitees come with more on their minds than holiday cheer (and free food and booze). And so they (of which I am, I must admit, complicit), come with notebook in pocket or purse, ready to grab some quotes from the executives. After all, we have the motive, opportunity and intent, and someone might commit news.

Which brings me to the Ford party. I happened to wedge myself into a scrum that had formed around chief operating officer Nick Scheele. If Bill Ford, Jr., is the man who has his name on the line when it comes to reversing the declining fortunes of the Ford Motor Company, Scheele is, arguably, the man who has his job on the line. While he was surrounded by people wielding pens or proffering microphones, he was asked about the turnaround plan that Ford will be putting in place. Despite the aggressive questioning, Scheele, thoughtfully replied in quiet tones (he was born in Essex, U.K., and is actually a knight). And what he said was remarkable. Essentially, he explained that the plan must be based on (a) determining the size of the market and (b) determining the portion of that anticipated market that the company wants to achieve. Sounds fairly simple, doesn’t it? Which is why it is all the more remarkable.

The auto industry has been historically based on volume. It is the sine qua non of mass production. The general methodology that companies have tended to follow during the past 100 years is to increase volume in order to increase their size of the market. One of the reasons why there are so few car makers today compared to what there were when the industry was growing (253 auto manufacturers in the U.S. in 1908) is because the vehicle manufacturers were looking for economies of scale. Smaller companies couldn’t profitably compete with the larger manufacturers. So the number dropped precipitously. And now that there is just a handful of vehicle manufacturers left in the world, there are occasionally signs that the handful might become a comparative thimbleful.

Something interesting has happened in the market, however. The luxury and near-luxury models are selling well. The light truck variants continue to sell well. And the rest of it...well, with few exceptions (let’s see...Camry, Accord, Civic, Corolla, ah, um), the rest isn’t doing particularly well. Nor is much of it profitable to any extent.

Why build a whole lot of vehicles that aren’t going to make any money? Habit? Or because you imagine that the customers will buy your products and leave the other guys’ vehicles rusting in lots?

I put it to Scheele that his notion of actually “right-sizing” the company flew in the face of what has been the approach taken forever in the auto industry.

And he just smiled. 

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