It is ironic that General Motors CEO Mary Barra has drawn the ire of President Donald Trump and members of Congress for announcing plant closuresin Michigan, Ohio and Canada when it is her shareholders who should be calling for her head.
Barra claims she is responding to shifts in car-buying habits away from sedans toward SUVs, and wants to move aggressively into electric vehicles, hybrids and self-driving platforms. But these are the fifth round of layoffs in 14 years.
The truth is that Japanese automakers can sell sedans at a profit, and GM can’t. And GM is struggling to compete on its home turf in SUVs too.
Five years ago, sedans were half of U.S. auto sales, but those now capture only about 35 percent. And all the major automakers must grapple with the plateauing of annual U.S. light vehicle sales at a bit more than 17 million.
SUVs are bigger and more expensive, but improvements in the engine and vehicle design have greatly reduced the gas-mileage penaltyimposed on drivers that choose those over sedans. And vehicles of all kinds are more durable these days.
Thanks to advances in metallurgy, fuels and lubricants — these industries are more high-tech than most folks recognize — and better design, engines last a lot longer now — over 200,000 miles as compared to half that a few decades back.
Consequently, car buyers are paying for the gas and keeping vehicles longer to compensate for higher SUV price tags.
Options like Zipcar and Uber, inexpensively delivered meals and groceries and Amazon Prime free more young people from the necessity of car ownership. Increasingly, those living in cities and congested close-in suburbs with access to decent public transportation for commuting are opting to skip car ownership.
Still, the battle for the sedan and smaller SUV marketsindicates just how vulnerable GM and Ford remain to more agile foreign competitors. Since 2015, sales of Impalas are down about 49 percent and sales of Fusions are down about 45 percent, whereas Toyota Camry and Honda Accord sales are down only 20 percent and 19 percent.
Japanese sedans simply deliver more value, reliability and verve, and don’t think for a moment the problem does not repeat where car buyers are heading.
The three best-selling vehicles in America are still U.S. pickup trucks — the Ford F-150, Chevy Silverado and the Dodge Ram — but those are followed by Japanese SUVs — the Nissan Rogue, Toyota RAV4 and the Honda CR-V.
Ford and Chrysler already announced they are effectively pulling out of the sedan market, and with GM’s exit, Asian automakers and Volkswagen will have a clear path to most of the remaining 5 million sedans sold here. And those are often the first cars young folks own and a gateway for manufacturers to hawk their SUVs as careers mature and incomes rise.
The U.S. tariff on sedans is only 2.5 percent, but SUVs and trucks benefit from a 25 percent levy.
When announcing the recent jobs cuts, GM carped that the recent steel tariff was costing it about $1 billion, but I did not hear Barra offer to give up her truck/SUV tariff if the steel duty were dropped — that’s the hypocrisy of Detroit.
It’s going to get worse — a lot worse.
Barra is betting that electric vehicles and autonomous drive are coming fast, but GM has been late to the party with just about every major innovationthat instigated change in what Americans buy since the 1970s. Chrysler pioneered the minivan and SUV, and Honda, Toyota and Nissan were first with contemporary front-wheel drive, hybrid and all-electric vehicles.1 comment on this story
GM’s most basic problem is a culture of mediocrity among its top managers and the difficulties of competitively producing vehicles in United Auto Workers organized plants. It is important to remember Japanese competitors make sedans in the United States profitably without a unionized workforce.
Whereas the Japanese aim to make best in class vehicles, GM executives are happy to settle for good enough. For a long time now, good enough has been not enough, and the matron of this culture of failure, Barra, should be shown the door.