The auto industry is coming off the best year in history. With record sales, you generally see record profits for the automakers. While the car business doing well is great for the overall economy, car manufacturers tend to do some really stupid things when they have excess cash, especially if the company has a Michigan address.
Around the year 2000, I was the Ford National Dealer Council Chairman, and I saw then-CEO Jacques Nasser spending Ford’s money like crazy. He bought body shop chains, salvage yards, unknown numbers of dot-com companies, which were bringing millions, he even bought Ford dealerships in five markets. He was burning through cash like there was no tomorrow, instead of putting the money into future products, he wanted Ford to become diverse, not just an automaker like it had been for 100 years.
So we turn the calendar to 2016, and I am seeing some of the same bad habits creeping in. Car companies tend to have very short memories it seems. Maybe I am wrong, but wasn’t it just a little over 7 years ago that three Detroit-based CEOs flew in their private jets to ask Congress to bail them out?
The news broke recently that General Motors invested 500 million dollars (yes, half a billion) in Lyft, a competitor to Uber. They also spent millions on a failed company called Sidecar to study their software, and they formed a short-term rental company for college students called Maven. All this is under the guise of learning technology and how to better integrate smart phones. CEO Mary Barra should get off the elevator on floors at GM headquarters lower than the penthouse; OnStar already does all this and does it very well.
Meanwhile at Fiat Chrysler, they are being sued by a dealer group for asking dealers to report false sales. While we don’t know if the allegations are true, if they are, was it really worth it? FCA just announced it was outsourcing the manufacturing of cars, so they can build more trucks and SUVs. Sergio, do you really think you can control quality at a factory you don’t own? Consider making a more appealing car so you can justify running your own factories, thus making a profit. Gas won’t be $1.75 a gallon forever and you’ll need those fuel-efficient cars.
Over in Dearborn, Ford is once again branching out with great ideas like having 5 or 6 people share a leased vehicle. I get cross-eyed thinking about people arguing, not paying their share, etc. Worse, Ford continues to mess with their greatest asset, their dealers. I know for a fact that Ford has raised the dealer cost of some models, without raising the retail price (MSRP) squeezing profit margins. They have not supported the dealers with competitive incentives so far in 2016, in spite of the fact that 2015 was the best profit year in their history.
Here is my free and clearly unsolicited advise to all automaker CEOs: Keep the main thing the main thing, dammit. Do your job, which in case you have forgotten, is to build the best vehicles possible, vehicles that people want to buy, then price them competitively. Remember too, you only sell to one customer and that is your franchised dealers. Without them, you will shrivel up and die, again. The stronger your dealers are, the more cars you will build, and the more money you will make.
Support your dealers, don’t fight them. Trust me, when the auto industry isn’t as good as it is today, you’ll need them more than ever.