I was far more interested in this remark: "We've been in a slump in the U.S. now for four years. It's not only in number but also in segment. You are moving from large pickup trucks, vans, luxury products to smaller cars. You know that many car manufacturers don't make any money on small cars. They make money on the larger cars, so when the market moves this way it's a double impact in terms of profit on most of the car manufacturers, if not all of them."
It is a business axiom that, if you make money on everything you do, you'll make a profit at the end of every month. Ghosn knows this because he used to work at Michelin, where profit is king and the marketing goal is to sell premium tires at premium prices. In the rubber biz, the mantra is: the more $/pound one can charge, the more profitable the product ... and the company. Because he is an auto outsider, Ghosn does not have the historic branding/multiple model hang-ups of inbred Detroiters.
Forty years ago, the coffee industry was a low-margin business. Restaurants offered coffee as a loss leader, quoting low prices and touting free refills. Then Starbucks (and other specialty roasters) came along and popularized the concept of boutique coffee - sold at a much higher $/lb. Starbucks took the idea to the retail brewed market ... and the 25¢ cuppa vanished, replaced by Venti Mocha Frappucino Whatevers at $5 apiece.
Domestic car companies are still in the 25¢ mode and that's why they're losing money, especially on smaller cars. For example, a Chevy Cobalt sells for about $4.20 per pound. The BMW 328i is almost identical in overall length and only weighs 100 pounds or so more than the Cobalt but sells for almost $12.00/lb. The Hyundai Accent competes in the same price arena as the Chevy but weighs 800 lbs. less and sells for over $6.00/pound. Then there's the similarly-priced Smart which pulls over $8.50 per pound.
There is also price disparity in the premium auto segment. The Lexus ES350 and Lincoln MKZ are the same length. But the Lincoln sells for less than $9.00/lb. compared with $10.50 for the Lexus. Move into the upper end of the luxury car market and you'll find prices in the $16-$20 per pound range for the big Lexus, Mercedes and BMW models. Meanwhile the Lincoln Town Car and Caddy DTS languish at the $10/lb. level
Detroit will succeed only when automakers are able to charge premium prices for their products. This requires a major changes - dealer upgrades, reverse decontenting of product and brand repositioning to change public perception. If they can't implement such changes quickly, Detroit will go the way of 25¢ coffee. (posted 2/8/08)
Other Pages Of Interest
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Don't be shy - try a bribe. It might help.