Commentary From An Unlicensed Author: Learning From the PS3 At GM, Ford, DCX

[YSSMAN]

Watching the news today you can't help but see the coverage over the North American launch of the PS3. It literally was everywhere on the news, and sadly it managed to outrank other stories that arguably should have had more importance. But when you have hundreds of people lining up outside of the local Best Buy and Circuit City, you know there is going to be trouble of some kind. People got shot, and others were severely injured in the fights that occurred outside of some stores.

And for what? Many of them, nothing. Sure, the allure of a game system that can bring home as much as $15,000 USD on eBay is exciting (I know if I had the time, I would have done it), and sure the PS3 would be great to have for yourself as well. But there have been problems, notably the lack of an HD cable and the issues with scaling. But all (small) problems aside, it kicks ass in pure power.

So lets move this over to cars, shall we?

It was announced this week that Ford was delaying both the Edge and MKX crossover utility vehicles from their Ford and Lincoln lineups. Due to "unforeseen quality issues," the trucks were pushed back about two to three weeks for most dealers, some may not even see them now until the final days of 2006. These two CUVs have had more than their fair share of attention, similar to the PS3, because of the great expectations put fourth on these vehicles, not to mention the fact Ford and Lincoln have been pushing the car in advertising for some time now...

It is disappointing to the customers, particularly those who have already put money down, but I can understand what Ford is doing. Making sure they have the best quality product available on the market SHOULD be any automaker's top priority, and Ford took a big step in doing what they did. It avoided the same small-issue syndrome that often plagues consoles from Sony and Microsoft, and kudos go to Ford with doing so.

Problem is, the buzz just isn't there for the new CUVs.

But, in another parallel to the launch of the PS3, we are going to need to call for GM to think things through before launching their new RWD Impala and Camaro for 2009. Buzz has been overwhelming for both cars despite the fact that GM only acknowledges the existence of one, and even then, details are scarce.

Given the perceived popularity of the two models, one would hope that GM is smart enough to start production early, stay on schedule, and not undersell the public and generate the mess we are seeing on eBay with the PS3. If GM were to build say, 40,000 Camaros for 2009, GM fans would go bonkers. Sure, increased demand guarantees sales, but in GM's current state, they can't afford to piss-off any more fans of the car or the brand.

Research MUST be done in order for the car to be successful, striking that balance between having too many, and too few, and enough to make money. I don't want to see bid wars for the car like we did with the Mustang, because when you are paying 120% of the price, it just isn't worth it.

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Sure, we would love to see thousands of people clamoring for a few precious automobiles at your local domestic dealer, but to be completely honest, I hope GM, Ford, and DCX take heed to what has happened today.

 

[neanderthal]

the problem with guessing demand is that there are no quantifiable datum to base your estimates on.
you and i can pontificate willy nilly about how if the impala and camaro came out we'd buy one, but when the cars on the lot and it doesnt sell, that hurts GM. i hear what youre saying about having enough cars to satisfy demand, but when you are in a financially untenable situation like GM is in you'd rather curtail production a little if its going to mean big profits.

imagine you can sell 50000 camaros at $40000 each vs 100000 at half the price. sure the math works out the same, you make the money, but you pay more in materials and labour and so on. yes, but surely the cost will be amortised over a larger number of units resulting in lower production costs. yes, but no.

these guys have already figured out the lowest way to produce cars. and that very slight reduction in cost wont make up for whats essentially twice the profit off each unit.

this is why im surprised the GM made the decision to make as many saturn sky's as it did when they sell them at a fixed price vs the industry standard at pontiac. make that mix 80% pontiac and you make more profit. which helps the bottom line more than selling more cars does.

 

[YSSMAN]

I do see where you are coming from. GM has already said that they want to build 100K Camaros per year, which I think is a bit high, but if they can make each model special and sell it as an everyday car, they will move them in droves. Hopefully they won't become overzealous with their sales goals, making too many too soon and over flooding the market with models. But given that the Oshwa (sp?) assembly plant in Canada will presumably be building the other Commodore-based Impalas and G8s as well, they can't run-off too many cars all at once.

As for the Sky production boosts, the last time I had heard, they had only increased capacity on all of the Kappa models (Sky, Solstice, GT) to 40K per year. There are quite a few Solstices here for sale, not as many Skies, but there are by-far more MX-5s sitting on dealer lots around here.

 

[harrytuttle]

Research MUST be done in order for the car to be successful, striking that balance between having too many, and too few, and enough to make money. I don't want to see bid wars for the car like we did with the Mustang, because when you are paying 120% of the price, it just isn't worth it.

I haven't heard of any real disappointment from those who overpaid for their Mustang. To those who paid 120%, the price was worth it; to those who didn't, waiting was worth it. This isn't the impulse item (or medium-term-decision purchase) that a game console is. People are paying tens of thousands for a vehicle; not a few hundred for some entertainment.

For a manufacturer, it's far better to underproduce than overproduce. For a given projected sales year, you can always up that number half-way through the fiscal year. And with hard data in hand, the next year for an existing car is far easier to make predictions for.

It's also a good marketing tool. Sony created artificial demand by initially stating they would have low production until well into next year. That created lots of hype, news stories, long lines, and people practically begging to hand over way too much for a game console. Less than a week later, a Sony official is quoted as saying "we are certain to ship out one million units by year's end". Now if he said that a week ago, the lines outside Best Buy would have fizzled into nothing and Burger King would get its employees back. It's not as if an electronics giant like Sony can't tell what their production capabilities are from day to day. But why do that when you can so easily create massive demand?

Besides, allowing bidding wars (by artificially limiting production) is a good way to give your dealers a nice "thank you".

 

[YSSMAN]

^ Good points all around. But when the American automakers are hurting so much to begin with and when every sale counts, does it not make sense to maybe slightly undercut demand, but otherwise hit it on the mark? With so many of the models becoming so compeditive, and generally speaking great alternatives on all sides, I would hope that GM is planning to bring in enough E2 Malibus and Zeta models to keep demand high, but have enough to satisfy most people.

...There are already lines for the GMT960s here in Michigan, particularly the Outlook from Saturn. Certainly our state isn't a model for the other 49, but if that is the case, I do see a good future for the models. Lets hope the problems stay low, production remains reasonably high, and people get what they want.

 

[harrytuttle]

^ Good points all around. But when the American automakers are hurting so much to begin with and when every sale counts, does it not make sense to maybe slightly undercut demand, but otherwise hit it on the mark?

Yes, I think that's pretty much what I said. I didn't mean for GM to create drastically artificial shortages, just "slightly underestimate demand" to create the short waiting lines and thus give the new cars that aura of high desirability. I don't think the new Malibu will have much trouble, anyway. It's quite popular here in the Northeast, despite being a lackluster product.