Vince Yambrovich Managing Director, Gallaher Read
It’s Saturday, 12/6/08 and I came into work today because I spent the better part of the last two days being literally glued to C-SPAN. The spectacle of the CEOs of the Big 3 automakers groveling before Congress for loans, a bailout, or any kind of cash transfusion to stay alive was just too compelling to pass up.
I found myself quickly transitioning from casual observer of a Big Business train wreck to diagnostician and Rx writer of a sales-based prescription to the economic ills that put the Big 3 CEOs in front of Congressional committees for the second time in two weeks. Somebody, somewhere has to go on record with something close to a market-based solution that can help one of these Industrial Age mammoths generate positive cash flow and regain a solid financial footing. It may as well be me.
It was an easy transition to make – this is what I do as the Managing Director of the Gallaher Read consultancy, SalesStrategyNow.com. Our clients are much smaller than the Big 3, but they share the common need of finding a consistent methodology of boosting profitable sales output in the current economic conditions, known to us at Gallaher Read as “The Diminishing Age.”
In watching the Big 3 CEO’s testify in Round 2 before Senate and House committees I became increasingly convinced that I was witnessing the watching either a near-death experience for the Big 3 or death throes – it was hard to discern which.
Over the course of two days I learned that GM’s bondholders are almost assuredly going to “get a haircut” – to the tune of at least a 70% loss on face value of the bonds, Cerberus Capital Management, L. P., the private equity concern that owns most of Chrysler will be getting their own “haircut” if Chrysler declares bankruptcy, and if Chrysler merges or is acquired by GM the “haircut” may happen further down the road. It seems to be common wisdom among the Congressmen and expert witnesses that there are two many domestic automakers competing for ever-declining shares of the Amercan auto sales pie, Chrysler is the weakest player by sales volume and by virtue of a much less-developed international market than GM or Ford, and thusly should be merged into GM or sold to a foreign automaker to put them out of their misery, according to this line of thought.
I learned that it is universally accepted that “there are too many auto dealers” spread out across America. It’s also almost universally accepted that the solution to this problem is to throw about half the auto dealers overboard, if only those pesky state franchise laws could be circumvented. Then again, not to worry, the credit freeze has thinned the dealer herd by several hundred already. The only dealer-reduction naysayers seem to be a vocal minority of Congressmen and women who have reason to believe their districts will be disproportionately hit with multiple dealership closures, further exacerbating their district’s unemployment statistics.
Organized labor, the United Auto Worker’s Union, seems to be resigned to a grim fate. Getting through The Diminishing Age as a cohesive, yet much-reduced union working for much lower wages and benefits would be considered a win by them. Before travelling to Washington for the Round 2 hearings Ron Gettelfinger, the UAW president, offered up the Jobs Bank, as the UAW’s Diminishing Age sacrifice, just as the Aztec’s offered up their most desireable maiden as a sacrifice to their gods. The Jobs Bank pays laid off auto workers at 95% of their customary wages after being laid off, “pays” meaning paid by the Big 3 corporate structures, thus a layoff of a UAW member provides little financial relief for a Big 3 company.
Suppliers were not discussed much, except in the context of falling like a chain of dominos in the event that one or more of the Big 3 were to enter bankruptcy, and in the “need for suppliers to be part of the solution” (read get their own haircut.) The Big 3 have been very aggressive with their supplier base on cost reduction for the past 20 years, including demanding access and audit rights to the books of the suppliers, and signing supply contracts with mandated pre-defined annual cost reduction factors. One must wonder how much “give” there is left in the suppliers.
Shareholders, well, if the stars and the planets line up correctly they might just mitigate their losses if they can hang in for the long term, otherwise, they’re toast.
I was struck by how much the Big 3 CEOs were all in varying stages of what we call “foxhole mentality” and “bunker mentality” at Gallaher Read. Ford would be the “foxhole mentality” company, Alan Mulally the Ford CEO seemed to be the most relaxed and the least worried of the three, as well he should, Ford is not asking for a direct cash injection, they only state a need for a $9 billion line of credit which would be needed if GM or Chrysler go into bankruptcy, the supply chain falls apart, and the surviving suppliers go to cash-on-the-barrelhead terms. Ford sounds like they have the capability of mounting at least a little bit of a marketing offense into the market, and they can jump nimbly from foxhole to foxhole, but are covering up and keeping their head down, they are acutely aware of their vulnerability in The Diminishing Age, just one incoming round that is even halfway on target means curtains for Ford.
GM and Chrysler are the “bunker mentality” companies. Their CEOs testify to the possibility of running out of cash in anywhere from three weeks to three months. These CEOs have a limited view of their futures, most of their energy is devoted to the crisis of the here-and-now. Sales have tanked, expenses are out-of-sight, trying to change direction is something like attempting to turn a fully loaded oil tanker around in less than one nautical mile to outrun some speedboats full of Somali pirates that just appeared off the bow. Both the GM and Chrysler CEOs are most concerned with survival, or hunkering down in their bunkers - creative marketing and making inspired changes to their business models seems to be chores they will allow themselves to be dragged through – but the impetus is clearly not coming from their offices.
Amazingly, little was discussed about marketing, sales strategy and methodology, and likewise little shows up in the Big 3′s federal funding relief applications, except in the most general of terms. The closest thing in all three plans that came to addressing sales is this excerpt from page 26 of GM’s plan:
Not knowing which technology will become the dominant one, GM is trying to cover the board for the future.
Apparently GM’s whole strategy for moving their planned new product lines of fuel efficient vehicles to market rests on “demand stimulation” in the form of federal incentives to buyers of the new vehicles – a one-two punch of consumer and corporate welfare in the most basic of terms.
Read between the lines- “Our plan(s) are chock-full of hybrid and alternative fuel vehicles in the next six years because this is what is sexy to Congress right now, and we finally get it about unfriendly foreign powers holding America in a chokehold of oil demand – when there is vigorous demand for oil. These will be good – no they will be GREAT new modes of personal and commercial transportation. We intrinsically know that the price tag for all this new technology is going to manifest itself in $35,000 – $50,000 SUV-style price tags for a compact vehicle – and in the economy of the Diminishing Age where much of our market is losing their jobs and have lost 50% or more of their investment account and 401k values – dang it, we’re going to have a hard time moving units at this price point – so pllleeeeease provide some demand-side incentives. And by the way, don’t forget to remember our financing arms for some TARP funding since the banking and insurance bailouts that have been doled out so far have done little to free up credit for our financing arms.”
A read-through of the Big 3′s applications for federal relief shows that they are all pinning their hopes on a hastily assmbled fleet of hybrid and alternate energy vehicles over the next six years. Of particular note is this excerpt from Chrysler’s plan:
“Chrysler’s viability plan includes 24 major product launches through 2012, including a wide portfolio of hybrid electric-drive vehicles within several catagories: Neighborhood Electric Vehicles (NEV), City Electric Vehicles (CEV), Range-Extended ElectricVehicles (ReEV), and full-function battery electric vehicles (BEV).”
Give Chrysler credit for some vision in their approach to the future, BUT, in the cash-impaired environment in which Chrysler now operates, is it reasonable to believe that four separate vehicle platforms can be cost effectively brought through R & D, put into production, marketed, and profitably sold in a four year time span? For the NEV at least – the answer is positive – Chrysler is a market leader in this area through it’s GEM (Global Electric Motorcars) Division.
In the absence of any clearly defined sales strategy being offered up by the Big 3 in their funding application plans, or in Congressional testimony, I humbly offer my take on the situation.
#1. DO NOT wantonly piss away one of your company’s greatest assets, your dealer network. Yes, there are too many of them at the moment – for present market conditions and for serious sales through-put of current product offerings by many of them. Keep those that have the financial wherewithall to make it for the next six months – they are central to your future.
#2. Change the concept of your dealers to that of being “All-Encompassing Neighborhood Transportation Centers” and away from the model of being a shark tank where Mr. & Mrs. Consumer are fair game for clever and aggressive, commissioned salespeople, conniving F & I (finance and insurance) guys, and service advisors that will milk their last dime and then some for repairs.
The “All Encompassing Neighborhood Transportation Center” will offer a representative, but not exhaustive (no need for a 10 acre parking lot or an on-site parking garage) collection of your company’s new vehicles, used vehicles of every brand, price-competitive service on all vehicles, buy here-pay here financing at market competitive rates, on-site availability of auto liability insurance (partnered with a prominent national insurer (much like what Allstate was to Sears at one time), a dealership-branded, manufacturer supported car rental fleet (say goodbye to the Enterprise Rent-a-Car franchises that have popped up in some dealers), a selection of motor scooters, and even a small collection of dealership-branded bicycles. “The All Encompassing Neighborhod Transportation Center” will creatively market – such as accessing local police reports on a daily basis to identify and market to members of the community that have had recent vehicle accidents and just may be in need of new transportation.
#3. Forge ahead with plans for fleets of hybrid, electric, and alternative fuels vehicles that you will be introducing to the market ASAP.
#4, Fill the gap that exists in the here and now – before the large fleets of expensive hybrid, electric, and alternative fuels vehicles gets here, and maybe even concurrently with them while they are here. Develop a super-economy, two seat kit car that is shipped in assembly modules to the dealers and go through final assembly and test-driving by the dealers.
The kit car will be somewhat based on the Yugo of the late ’80′s and early 90′s and the Volkswagen Beetle of the 50′s and ’60′s. The kit car will have a maximum speed of 65 MPH and will be specifically marketed as a car for city streets, not freeway use and realize a fuel efficiency of about 35 MPG.
The marketing idea behind the kit car is to provide low-cost basic transportation to the U. S. market while the current recession and economic hard times run their course. The kit car will be offered at a price point of about $6000 and will largely be purchased with people’s savings or withdrawals raided from IRA and 401k plans.
The modules comprising a kit car could include: power plant, drive train, body/frame/doors/windows (BFDW), interior/seating, fuel supply, steering/brakes/wheels, exhaust, and perhaps an optional air conditioning module.
Many of the modules could be supplier manufactured, assembled, and direct-shipped to the dealer via rail, common carrier, and intermodal, bypassing the existing final assembly plants. The BFDW module will be shipped from the final assembly plants painted and will be hard-wired with most of the electrical system in place. The body design will incorporate a state-of the art rollcage/crash protection box adapted from NASCAR that will win accolades from industry regulators, automobile insurers, and the media instead of the jeers that the VW Beetle and Yugo got. The BFDW module will also be shipped to the dealers via rail, common carrier, and intermodal.
The modules could be assembled with proprietary tamper-proof fasteners in both the pre-assembly and final assembly stages that would “encourage” dealer service instead of consumer generated DIY or shade tree mechanic service solutions.
The manufacturer will facilitate in a very large way the procurement of product liability insurance coverage that the dealers will need for their role in the final assembly of the kit car.
The kit car will have a bonus effect of favorably impacting the manufacturer corporate averge fuel economy (CAFE ).
The prime benefit to be realized from pursuing the kit car business model in conjunction with bringing expensive new technology to market is the positive cash flow and profitability derived from moving a basic transportation product that far more Americans can afford right now than the expensive new technology. When the economy eventually rights itself and demand starts to fall for low-cost, basic transportation products, the kit car line can be easily phased out, having met basic transportation and economic needs in The Diminishing Age.
The basic outline defined above is just idle talk at this point. Were a C-level executive or some well-placed directors at one of the Big 3 to take this plan and run with it, only then does it become transformational. Were a junior executive to champion the kit car plan there is always the possibility that it would see the light of day, but more likely the plan would meet strong headwinds, something down the line of “we don’t work that way in this business” and the plan ends up on the scrap heap of consultant recommendations made in vain.
It is because of the political factors in selling transformational sales and marketing improvements that Gallaher Read tends to work with smaller, closely held enterprises where our work has total ownership/executive management buy-in and support and has an immediate, direct impact on quarterly results.
Nonetheless, it has been a fun exercise to conceive an emergency sales and marketing model for a Big 3 automaker. A Big 3 company that could bring itself to roll out the kit car concept would enjoy first mover advantage, more likely it would be an only mover advantage, in creating profits and cash flow from meeting basic transportation needs.
Any one of a number of Tier 1 suppliers to the Big 3 could take the kit car concept and run with it, but they would have a bigger mountain to climb, having to build a nationwide dealer network from the ground up.
Vince Yambrovich may be contacted at: MDir@www.salesstrategynow.com
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