Detroit's Serial Discounting Mentality Comes Home To Roost
This week's Rants by Peter M. DeLorenzo
Detroit's Serial Discounting Mentality Comes Home To Roost.
Detroit. The American Customer Satisfaction Index (ACSI) released Monday from the University of Michigan and the American Society for Quality suggests that in terms of the balance of quality, service and price - US automakers, on average, are losing ground to Japanese and European makers. The report marked the third year in the American automakers' decline in customer satisfaction - while Japanese makers have rebounded.
The key finding in the report? That American car companies are hurting the perceived value of their brand with discounting and rebates - a perception that plays a role in their customers' overall satisfaction with their purchase.
This could easily qualify as the "duh" of the year.
I've commented on this before, but when GM initiated its "Keep America Rolling" national incentive campaign in the weeks and months after the terrorist attacks of 9/11/2001, it was a bold stroke of genius and a jumpstart the country sorely needed. And it worked. The other car companies jumped in on the action, and it spurred the economy - pulling it out of the doldrums. And the icing on the cake? GM enjoyed one of the most memorable fourth quarters in its history.
But at the crucial juncture when GM could have and should have backed away from the massive cash incentives and rebates, it decided to take advantage of its newly streamlined production efficiencies and its resulting advantageous cost position to gain ground on its domestic competitors - particularly DaimlerChrysler and Ford.
And thus the "scorched earth" policy of offering staggering discounts went from being a one-time gesture to boost the economy to being the standard operating procedure for doing business in the U.S. automobile market.
And what was an outstanding short-term solution at the time - one good for the country, good for business and good for consumers looking for a deal - has now became a giant anvil around the necks of the American car companies, sending them into a death spiral that they can't pull out of, apparently.
Because along with the huge "perception gap" that the Detroit-based car companies are already fighting, in which their new and competently competitive products are not meriting the consideration they deserve (except in a few notable instances) because of years of transgressions that have (predictably) created a dubious reputation in consumers' minds - "Detroit" now is facing the reality that their short-term thinking has created the perception that their products aren't worth owning, no matter how good, how stylish or how fast - unless there's a "deal" involved.
I can't tell you how many people have told me personally that "Detroit products are interesting now, and I might consider a (fill in the blank - 300C, Magnum, '05 Corvette, XLR, CTS-V, new Mustang, etc.) - next time." But then most of those same people, given the stats and all of the mitigating factors involved, inevitably buy an import-sourced vehicle instead.
When I ask why, the response is always vague and sometimes evasive. Comments like, "It just didn't work for me." Or, "The (blank) was really good, really impressive - but in the end, it just didn't have the appeal of the (Toyota, Honda, Lexus, BMW, Mercedes, Porsche, etc.).
But when I read between the lines of these comments, the implications are very clear: Detroit products lose because of a lethal combination of negative reputations accrued over the years, a subsequent unwillingness by consumers to now take a chance on newly reinvigorated Detroit brands and finally, a not-so-subtle view that Detroit products are somehow tainted because of their discount marketing.
This latest ACSI study only serves to confirm the virus that's coursing through the veins of the North American automotive market.
When the Detroit-based car companies' raison d'etre became offering deep discounts to keep the whole enterprise going, and they made no bones about the fact that the "deals" were there for the taking, they made the fatal assumption that this way of doing business wouldn't have a profound effect on their long-term image, and that they - when they finally had the new "gotta have" products in place - could overcome any lingering negativity in the market and that consumers would gladly judge their new products on their merits alone.
Needless to say, it hasn't worked that way. The scary part of all of this for Detroit is that as their obviously worthwhile new products emerge - their share of the market continues to erode. There seems to be an inevitable cadence to the decline, too - in spite of some clearly stellar new products emerging from DaimlerChysler, Ford and General Motors.
The powers that be in this town want to be able to snap their fingers and make this bad juju go away. They want people to set aside their negative preconceived notions and buy Detroit's new products on a wing and a prayer - and to somehow trust that they won't be ultimately disappointed by the products they buy.
As much as I believe Detroit has gotten it together and made huge strides in almost every respect, and as much as I believe that consumers out there are missing out on some outstanding new products because of their preconceived notions - the fact remains that Detroit is paying dearly for their serial discounting mentality, and they're running out of time to turn the tide.
Thanks for listening, see you next Wednesday.