Most of the articles that I found yesterday have been leading me in this direction. First there was the article about LaSorda and China, then the one about automotive style. Now, this piece of news about how lower volumes can mean higher profits for car makers. The new car market in the U.S. is heading toward the European model of low-volume vehicles with a wide variety of choices. While the U.S. market will experience a different style of segment fragmentation, it is an interesting trend to study. According to the Detroit News article, the market is going from hundreds of thousands of units sold per nameplate to tens of thousands. Their magic number is 50,000 units per year.
In light of this and other news about China and automotive style, you can begin to peek into the future for the American automotive industry. With competitive pressure from Asia and Europe, American automakers will need to evolve to stay competitive. Obviously, they could evolve into bargain basement manufacturers selling cheap cars on the cheap. They will never be able to match the low cost models from foreign makes, specifically export models out of an efficient Chinese auto industry. I would give the Chinese five to ten years before they?re severely undercutting everyone else?s prices segment by segment. Initially, consumers may be weary of the new manufacturers, and some models imported will come from established brands. Ultimately, those vehicles and others like them will be like commodities. They will be cheap, readily available, and reliable. Think of the appliance analogies attached to Toyota and Honda and you get the general idea.
The U.S. Automotive Industry, including the UAW and other labor groups, must take a hard look at the future and
determine the best course of action. There are two strategies that will save the U.S. industry from this new wave of
competition. At this time, the first priority has to be manufacturing flexibility, through automation and manufacturing
process optimization. The amount of excess manufacturing capacity could be better used if production facilities
were flexible enough to accommodate several different models in one plant. The technologies implemented at production
facilities are important to the future prosperity of the U.S. automakers. Chrysler is just one U.S. automaker who has
already begun this process.
The second strategy that will help U.S. automakers is to create highly desirable vehicles in lower volumes. The manufacturing flexibility is crucial for this to be profitable. When supply is low and demand is high, then profits per unit should also be high. It is elementary economics. However, plant flexibility, vehicle platform flexibility, and design resources all must be up to the task. You can see examples of how this low-volume/high design strategy works out in other industries. Look at the Apple iPod. There are seemingly hundreds of competitive products out there that do the same thing, play MP3s, for less money with more capability. It is the design and exclusivity factor (at least initially) that has propelled them to popularity. Those design and exclusivity qualities are what will create a desirable product, and a desirable product will sell and be profitable.
In a sea of cheap, efficient people movers, individuals will want to stand out as much as possible. Having a line of stylish, desirable vehicles will build brand image and drive sales. It is time to drop out of the volume race, boys, and focus on making cars people want.
That is it in a nutshell, outside of any other hypothetical scenario that we can conjure up. Automotive journalists, enthusiasts, greens, and general gear heads might say one thing or another will save the U.S. industry (an engaging driving experience, higher quality, a powerful drive train, or a fuel-efficient drive train). What it all boils down to now is making vehicles people want to drive. Going forward, it is design and manufacturing flexibility that will be important to quickly meeting the fickle desires of the emerging automotive market. Of course, that?s just my opinion.