In an age where entire industries are in turmoil, it is probably safer to follow consumer desire than industry precedent

Earlier this afternoon, I posted an entry at this blog about “weaning both drivers and dealers from discounts.” Soon after, a colleague asked me to elaborate on the idea that, “…Both manufacturers and dealers must develop something new in the menu of products people buy, and the way they buy them.” I thought I’d share part of that conversation here.

First, the issues facing the auto industry right now are not as clear as black and white. There is a lot of “gray area,” and it is dangerous to over-simplify the situation. As one example, one might conclude that the auto industry is simply suffering from a situation where people are not buying enough cars. Look deeper, though, and the problem could be a matter of over-supply, rather than lack of demand. Anytime production drowns the available consumer pool, sales become a challenge.

The truth is, some people have been buying lots of cars and trucks over the past twenty years, even when they hadn’t yet used-up or paid-off the car they already had. I often cite a story that appeared in the LA Times a while back, quoting a Federal Reserve report that the average car loan term is now 64 months... that 45% of car loans are written for longer than six years. And that the average car owner still owes $4,221 against their vehicle… on the day they sell it or trade it in.

Those numbers would suggest that finding car buyers has not been the problem. Over the past couple of decades, the bigger issue might be that they indeed found buyers, and consumers have found all those discounts, financing and incentive offers irresistible. They bought, again and again, further extending the term and increasing the amount of debt on each occasion, until the burden could no longer be deferred. The credit issue, at least in part, has contributed to the quandary faced by the auto industry right now.

The Cash for Clunkers program is now officially over… and as you saw in the posting earlier today, manufacturers and trying to stem the flow of “factory sales events,” rebates, credit terms and other discount incentives. So that leaves the question: What kinds of elements might lure consumers back to the showroom, absent these gimmicks? Cash for Clunkers has helped a lot of companies move a lot of inventory. But the now-expired tactic was never intended to replace much-needed strategic change. The consumer is re-setting what they will buy, and why.

When I ask these questions, my goal is not to indict an industry, but to prompt a conversation about “what’s next.” Here are a few half-baked examples:

Innovation: What is the automotive equivalent of the i-Phone? How quickly will electric cars (or other ultra-efficiency) models hit the street? Why doesn’t my vehicle have a charging station for my laptop or cell phone, which doesn’t involve all those goofy cords plugged into the lighter socket? When (not if) gasoline hits $5/gallon again (or more than $1.30/liter), who will have created the most cost-efficient solutions… and how will consumers learn to weigh the price of the vehicle/technology, in relation to the cost of ownership?

Experience: What could dealerships do to make the process of buying a car more enjoyable? What could they do that they’re not doing now? What are they doing now that should stop doing?

Financing: Given the current debt load so many people have on their vehicles, might the future hold a different economic relationship between auto buyer, bank, and seller? (Some airlines own very few planes; instead, they lease the aircraft from a manufacturer, in a manner that both the airline and the maker have an interest in how the product is priced and depreciated.) What does a sustainable credit model look like for the auto industry?

Inventory: Will adjustments in production actually come to pass, so that supply can be more closely aligned with demand? (A flood is no time to sell water.) How close could the industry come to a “just in time” and “my size fits me” production format (like Dell, for example)? Would the consumer value that capability, if it existed?

Service: When auto sales are strong, it is easy for a dealership to be distracted from maximizing the revenue—and relationship—potential of their service department. Now, with so many quick-stop oil change stores and tune-up centers on the competitive landscape, what (besides warranty work) could be done to convert car buyers into service loyalists, thus giving the dealership greater advantage the next time that consumer is in the market?

I’m sure there are people in the automotive manufacturing and sales business who won’t enjoy this assertion, but in hindsight, the current “right-sizing” of the automotive industry seems to have been inevitable. But of course, this blog is not about the auto industry, but consumer trends. So let me conclude by circling-back:

For some companies, pricing is a strategy (i.e., Wal-Mart); price defines the strategic approach of the company, and a value proposition for the consumer. For other companies, pricing is a tactic… and one which often does not necessarily support their overall strategy (i.e., “The highest quality widgets, at the lowest price on the planet.” The consumer knows those two claims are difficult to reconcile).

A marketing strategy that is flawed—fundamentally—cannot be sustained, for the long term, by short-term tactics. A low price might buy you some time and get you through a headache. But just like aspirin, relying too heavily on tactics to compensate for a broken strategy will lead to stomach upset.

How is YOUR customer base changing? Are their wants and desires the same today as they were two years ago? Five years ago? Next year? It is a time to take comfort in the needs expressed by your consumers… rather than industry precident.

Mike Anderson