The Auto Industry is now a Commodity Business

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The “Detroit Three” auto companies as we should call them today need to keep one thought paramount as they struggle to survive and begin to grow again.

It’s this: advancements in manufacturing and production -technologies have rendered about 80% of the contemporary automobiles produced to a commodity product.

True, today’s cars are a technological marvel. We have more computer chips in our vehicles’ engines than we do in our homes.

True, today’s cars are incredibly durable compared to those of just a few decades ago.

True, even the most modest of today’s cars are loaded with creature comforts no Duesenberg or Stutz owner could even dream of.

True, the smallest and least expensive model is far safer than Cadillacs from the era when that nameplate declared itself “an American standard for the world.”

So how can this wondrous product, the object of America’s longstanding “love affair with the automobile,” be called – as it reaches its evolutionary best – nothing more than a commodity?

At least 20 companies, around the world, can design, engineer, and manufacture today’s car. These cars look alike. They meet the same safety and environmental standards.

Detroit has brought its product up from the quality disaster it was 30 years ago. Now Detroit builds good cars.

Detroit must accept that the value added to distinguish its product from all the others doesn’t come in the concept or on the factory floor. These remain vital parts of the equation, but in terms of product parity, not in terms of business success for about 80% of cars produced!

The customer buys on price and service when he buys a commodity-car. This commodity business needs an entirely different business model than the remaining 20% of the production with the high value-added, luxury, high price special vehicles.

Very briefly the Detroit Three each should be organized into a structure of two separate and autonomous operating subsidiaries each concentrating in making cars on the relevant business model: the commodity model that has relatively lower labor content and marketing required of a very competitive environment; and the high value added and high price model that markets in to niche markets. Corporate should have capital availability, global strategy and technology development responsibilities, as well as legal and financial reporting and public relations responsibilities that a public corporation needs to have. Each one of the operating subsidiaries should and could negotiate the appropriate to the business model labor contract with the UAW. These contracts should and could be different from each other.

Whether or not our government continues to divert taxpayer dollars for the cash flow needs of these companies, the Detroit Three automakers must confront the above basic truths or they have hard time to be competitive.

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