Automakers: Learn From History
by Jerry Reynolds
December 02, 2013
Greed is a bad thing, but seems to obsess automakers when times are good. Sure, the car companies, no matter where they are based, make money building and selling cars. The line between building too few and too many is very thin.
I remember well when the “Big 3” only cared about how many cars they built. They ran the assembly lines practically 24/7 and they sped the assembly lines up to the maximum to churn out as many cars per hour as they could. While good for the bottom line, it was not good for quality control and much of the profits made were paid back in warranty expense. I fear we are headed that way again.
North American production is scheduled to hit 4.3 million vehicles in the first quarter of 2014. By comparison, the most cars ever built in a single quarter was in 2000, when 4.7 million vehicles were produced.
In my opinion, not only will this stretch the assembly line processes, this will also strain the suppliers that make parts for all these cars. You have to remember that automakers and suppliers have both scaled back since 2008, and then, suddenly, they are overwhelmed. That can be disastrous for vehicle quality.
Consider this: in the year 2000, when 4.7 million vehicles were built in just the first quarter, there were over almost 25 million vehicles recalled that year. That is the most ever since recalls have been tracked. Coincidence? Probably not.
In 2008, one of the lowest years for auto production, only 8 million vehicles were recalled. There does indeed seem to be a correlation between the number of vehicles built and the ensuing number of recalls.
The next problem with overproducing cars is incentives. For years, the model for the auto industry was build all you can, and force them down the throat of the dealers. When the days’ supply of vehicles got too high, the automakers poured the incentives on to move the products, so the dealers could take more. Although denied vehemently, the automakers often packaged cars. If you wanted the hot sellers, you had to take the cold sellers too.
When the crash came in 2008, the automakers cut production and were able to cut incentives as well, making for a more healthy auto industry. As the economy improves, and the industry appears to be on the verge of the best year in a long time, there are fears that incentives are going to start to really cut into the profits of the automakers. Like an addict, car companies tend to overproduce and overspend because of the number of cars they have built.
As I write this, November sales numbers are not in yet, but my guess for 2013 is the auto industry will sell somewhere around 15.6 million vehicles for the year. 17 million was the norm in many years during the decade of 2000, but this was an industry that had adjusted to those kinds of sales. Today, that is not the case. Just five years ago only 10 million vehicles were sold, and GM and Chrysler were in the midst of filing bankruptcy.
Much can learned from history. I hope the automakers bear in mind past mistakes, and avoid them in the future.