Self-destruction by Ford, GM, and DaimlerChrysler

Posted by jd
August 3, 2005

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I would love to be a fly on the wall in the conference rooms of Toyota, Nissan, Hyundai, BMW, Mercedes-Benz, and Kia. All of these automakers either had record sales in July or exceeded their expectations. The beauty of their business model is that they did not have to do anything to make it all happen. Their competitors GM, Ford, and DaimlerChrysler did all the work, took big hits on profits, and have trapped them into a vicious circle forever.

Exactly as I had predicted last month, these so-called “You pay what we pay” programs are disastrous, and by extending them in one form or other, the price wars have become self-destructive. This is why I think so:

    Demand for cars in a market is finite. At some point even if you give the cars away, people will not buy them. Pretty soon, people will stop buying the models on sale now.
    Consumers are smarter than you think. For instance, they figured out the strategy in the retail sector a while ago. Now they simply wait till products go on sale (and retailers play the game by artificially high prices in the beginning and then putting them on sale at their real price). In reality, nobody wins.
    Not every sector is amenable to Wal-martization. The Wal-Mart business model works only for them because of two things (i) scale (ii) low-cost business model. The American automakers are not lowering their costs as much as they are lowering their prices. You do the Math.

My conclusion – GM, Ford and Chrysler are simply destroying their own businesses out of sheer desperation, lack of strategy, and incompetent management. If you are an executive who is truly committed to creating shareholder value, then please just don’t do this. In my opinion, it is better to have a smaller, profitable business than to have a large, unprofitable business.

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Trackback by Funky Cars on August 4, 2005 @ 3:15 am

Self-destruction by Ford, GM, and DaimlerChrysler

[Source: iProceed - Better Strategy, Better Business] quoted: I would love to be a fly on the wall in the conference rooms of Toyota, Nissan, Hyundai, BMW, Mercedes-Benz, and Kia. All of these automakers either had record sales in July or exceeded thei…

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