jim higgins

Young Car Buyers Challenge Detroit
http://tinyurl.com/myk8ej

GM, Chrysler, and Ford must convince Gen Y consumers that their quality
has risen and their new models deserve consideration

By David Kiley

As Chrysler emerges from Chapter 11 bankruptcy, and as General Motors
(GM) in all likelihood heads into the same process, the toughest and
most important obstacle facing those companies will be young consumers
like Joseph Molinari.

Molinari, a 24-year-old recent graduate of the University of Michigan's
Graduate School of Social Work, is in the heart of the so-called
Generation Y, consumers between the ages of 22 and 32, whose parents are
baby boomers. Armed with his degree and in a new job in Pinetop, Ariz.,
Molinari is driving a nine-year-old Honda Accord that he got while in
college, purchased with help from his parents off a used-car lot. The
car has a glitchy transmission, and the prospect of snowy mountain
driving in months ahead has Molinari thinking about new wheels. But so
far he is not very intrigued by the amazing deals to be had on Fords,
Chevrolets, and Dodges. The car he is most interested in checking out is
a Subaru Outback, because of its high marks for reliability and a tough
all-wheel-drive system.

"I go with what the research tells me, and then I look at price," says
Molinari.
Settling for a Low Price

There's the rub for GM and Chrysler, and to a lesser extent Ford. At
least two generations of Americans have grown up thinking that U.S.
brands are not the preferred option for passenger cars. In any one
category for the past decade or so, the best-selling cars in America
have been of Japanese origin—Toyota Camry, Honda Accord, and Nissan
Altima. Ford's F Series pickup has been the best-selling vehicle
overall, but truck buying is very different from car buying. Chevy has
actually been the leading brand among Gen Y, according to researcher
AutoPacific, but there's even bad news in that: Sales have been driven
overwhelmingly by the brand's lower pricing and cheaper subcompact and
compact offerings, not by preference. "They settle for Chevy, but aspire
to imports mostly when they get a bit of money," says AutoPacific's
Deborah Grieb.

It's well established that Detroit automakers lost ground in the 1970s
and '80s with baby boomers. Rebellious and independent when they were
buying their first cars, boomers did not want "their father's
Oldsmobile." They flocked to Asian makes like Toyota (TM) and Honda
(HMC) just as those companies began setting the industry pace for
quality and reliability, which Detroit has been chasing ever since.

The bad news for Detroit is that so far, at least, children of the
boomers aren't showing a similar streak of auto-brand independence.
Fifty-one percent of Gen Y say they are considering Toyotas, according
to AutoPacific, while Chevy scores with only 34%, Ford (F) 32%, and
Chrysler 10%. It's a trend that GM, Chrysler, and Ford need to reverse
if they're going to regain traction in the U.S. market.

"Gen Y is much more apt to be aligned with their parents' brand choices
than those boomer parents were with theirs," says John Wolkonowicz,
director of special projects at IHS Global Insight's automotive
practice. American carmakers "simply must do much better with Gen Y than
they did with their parents, or the comeback we keep hearing about may
not happen."
Rejection by Gen Y

Reliability and reputation matter a great deal to consumers, but
especially those in Gen Y. In J.D. Power & Associates' "Avoider"
research, which surveys car buyers on why they avoided certain brands,
around 30% of boomers, Gen Xers (those aged 33-45), and Gen Yers said
they were "concerned about reliability." Nineteen percent mentioned "bad
reputation of manufacturer." And in both those categories of rejection,
Gen Y had the highest level. For example, in the Power survey 24% of Gen
Y survey takers cited "bad reputation," while just 18% of their boomer
parents did.

So, it's a double whammy for Detroit. Not only is Gen Y larger than
either the boomer or Gen X group, but its rejection rates are higher as
well. "In areas like fuel economy, the U.S. manufacturers are doing much
better and can penetrate the market with that information," says David
Sargent, vice-president for research at Power. "But changing overall
attitudes and perceptions about quality and reliability takes longer."

Trouble is, these younger consumers are slaves to Internet research. And
when the leading third-party arbiters—such as J.D. Power (a unit, like
BusinessWeek, of The McGraw-Hill Companies) and Consumer Reports—put GM
well behind the likes of Toyota, Honda, and the Europeans, it makes it
tough for rational consumers with little "Buy American" sentiment to
choose a U.S. brand unless they are bowled over by a particular
vehicle's design or price. Consumer Reports recommends no Chrysler
products this year. GM only had 19% of its vehicles on the recommended
list. Meantime, Ford had more than 70% of its vehicles recommended,
about the same as the Toyota brand (not including Lexus and Scion).

But there are people working to change Detroit's fortunes who see hope,
especially as GM and Chrysler get rid of models and brands that have
dragged down their reputations and quality scores. Eric Hirshberg,
president of ad agency Deutsch/LA, which has handled advertising
assignments for GM as well as its Saturn unit, says he believes GM in
particular has a fresh opportunity with Gen Y.
Lots of Also-Rans

"GM is at its lowest right now, and it is being forced to focus its
operations on its best and core products and brands, which are quite
good," says Hirshberg. He believes that if you get GM down to its 15 or
16 best products, it is a "lineup Toyota would be envious of." Chevy
Malibu was a "North American Car of the Year." The Cadillac CTS luxury
sedan has been widely accepted as a worthy alternative to German sedans.
And Chevy Impala and HHR are both Consumer Reports recommended.

The trouble, Hirshberg notes, is that GM has maintained dozens of
vehicles over the years that were past their "sell-by" date. The company
stretched its resources too thin, leaving a lot of chances to score
poorly on the quality surveys.

Indeed, GM is expected to whittle down its brands in the U.S. from eight
to four, concentrating on Chevrolet, Cadillac, Buick, and GMC. Chrysler
likely will eliminate the Chrysler brand and replace it in showrooms
with Fiat (FIA.MI). The Italian automaker will own a large stake in
Chrysler and run the operations as it comes out of Chapter 11
bankruptcy. "Could be that when Fiat and Fiat-inspired vehicles begin
showing up in the showrooms, young people get drawn in out of
curiosity," says independent marketing consultant Dennis Keene. "That's
what happened when New Beetle showed up at Volkswagen stores—that car
sold a lot of Jettas and Passats because the Beetle got people to the door."

Another wild card that could work in the favor of U.S. carmakers is
Barack Obama. The new President has already talked more about the U.S.
auto industry in three months than the last two Presidents in their
collective 16 years, and he is invested heavily in the success of the
restructuring of the companies.

"A year or two of Obama emphasizing the restructured GM and Chrysler,
which he has staked his reputation and taxpayer money on, and you could
start to see Gen Y take a lot more interest in these brands and looking
at them in a new light," says Keene. Chrysler executives have already
been playing that card. "President Obama thinks the new Chrysler is a
good investment, and he is putting more than $4 billion into it," said
Chrysler Vice-Chairman James Press when discussing the automaker's sales.
Potent Cheerleader

An Obama commitment to cheerlead the industry could help not only with
younger buyers but also in certain geographic regions. GM, Ford, and
Chrysler have very small shares of the passenger-car market in
California, the Boston-Washington corridor, and Southeastern states.
Ford, for example, says its market share in California is less than 2%
after subtracting Ford pickup and Mustang sales. It's comparable for
Chevy and worse for Dodge. In the first quarter of this year, Detroit as
a whole held but 27.6% of California, compared with 51% nationally.
Japanese brands held 53.3% of California new-car sales, vs. 38.2%
nationally.

In the Washington region, Ford holds around 5% of the passenger-car
market. When GM conducted focus groups for perhaps its best car, the
Chevy Malibu, among college-educated women in the Washington area, the
results overwhelmingly showed the women scoring the car extremely high
for design, styling, and features. But when they were shown it was a
"Chevy Malibu," acceptance "dropped off the table," said one GM
executive who saw the results.

The U.S. industry will need the President boosting its image. Brands
that are already popular with Gen Y are in expansion mode. Volkswagen is
ramping up a big push with a new U.S. factory. Automakers in China and
India are preparing to enter the U.S. And AutoPacific's study shows that
49% of Gen Y would gladly consider a Chinese vehicle, compared with just
21% of the country as a whole. Thirty-four percent will consider cars
from India, vs. just 14% of the country overall.

That's disconcerting, to say the least. If GM is going to bounce back,
it is going to have to change some minds. The Chevy brand represents
more than 13% of market share in the U.S., and about 65% of GM's sales
today. That share will only rise after GM lops off its other brands.
Chevy is going to be by far the most important brand for GM—whether it
makes the company, or breaks it.

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Civis Romanus Sum

mike

According to several recent surveys, Ford currently meets or EXCEEDS
Japanese brands and Ford vehicles can be driven home for 20% to 30 % LESS
than the Japanese brands of comparable size and similarly equipped, to boot

jim higgins

Poor Mikey, always in denial. You lost *BIG* time Mikey.

--
Civis Romanus Sum

mike

You are the one in denial, either that or you don't read survey reports or
follow industry statistics. LOL