How Detroit Lost the Millennials, and Maybe the Rest of Us, Too

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The current debate over whether to save our domestic auto industry has revealed some starkly different views about the future of manufacturing in America among economists, elected officials, and corporate executives. There are many disagreements about solutions to the Big Three’s current financial difficulties, but the more fundamental debate lies in whether the industry should be bent to the will of the government’s environmental priorities or if it should serve only the needs of the companies’ customers and their shareholders.

But there’s something more at stake: the long-term credibility of Detroit among the rising generation of Millennials. These young people, after all, are the future consumers for the auto industry and winning them – or at least a significant portion of them – over is critical to the industry’s long-term prospects in the marketplace and in the halls of Congress.

The enormous investments the federal government has been making in private enterprises, including the auto industry, will test the ability of private sector executives to meet the expectations of this very civically minded generation. Sadly, so far, it’s a test many business leaders seem likely to fail.

In the case of the American auto industry, this failure has deep roots. Over the past few decades the leaders of the Big Three repeatedly have failed to move their industry in new directions, even when the opportunity to do so has plainly been put before them.

Attempts to nudge Detroit into producing more fuel-efficient vehicles have been going on since the 1973-4 Arab Oil embargo, which led Congress to establish Corporate Average Fuel Efficiency (CAFÉ) standards for cars and light trucks. The target was for cars to meet an average of 27.5 miles per gallon (mpg) by 1985. On Earth Day, 1992, Bill Clinton proposed to raise that standard even further to 45 mpg after he was elected President.

When Al Gore was asked to join the ticket, auto industry executives, terrified at the prospect that the man who had called for the abolition of the internal combustion engine might become Vice President, implored the leadership of the United Automobile Workers (UAW) to meet with the candidates and bring them to their senses. The lobbying effort worked. Under pressure from Owen Beiber, then UAW president, and Steve Yokich, who was his designated successor, and the powerful Democratic Congressman from Dearborn, Michigan, John Dingell, Clinton agreed to delay the adoption of higher CAFÉ standards until it could be proven that such goals were attainable.

This formulation opened the door for what came to be known as the Partnership for a New Generation of Vehicles or PNGV. Reluctantly supported by the Big Three, PNGV provided approximately a quarter of a billion dollars in government research funds to demonstrate the feasibility of producing a midsize sedan that could get 80 mpg. Often called “the moon shot of the 90s,” each car company was to make a prototype of such a vehicle by the politically convenient year of 2000 and begin mass production by 2004, another presidential election year.

After a few years of technological research, reviewed by the independent National Research Council (NRC), the partnership settled on the combination of a hybrid gasoline and electric powered propulsion system as the most promising approach. But by 1997, the car companies were resisting development of even a prototype for such a vehicle.

Vice President Gore, who had been in charge of the PNGV program since its inception, decided to meet with the Big Three CEOs to make sure they did not forget their past commitments. The answer from Detroit was emphatic: profits were coming from SUVs and heavy-duty trucks, not cars. Gore suggested they deploy a 60 mpg hybrid passenger sedan in 2002 rather than waiting for an 80 mpg version in 2004. Ford’s Peter Pestillo and his UAW ally, Steve Yokich, quickly replied, “no way.” Pestillo maintained, “we need much more time than that to make them cost competitive.” Gore could have, but didn’t, embarrass his host by pointing out that Toyota’s Prius was already delivering 55 mpg.

Not all executives were blind to the challenge. General Motors’ Vice-Chairman, Harry Pearce had been the driving force behind GM’s ill-fated EV1 electric car experiment. Despite a bout with leukemia that took him out of consideration for CEO of the company, he and his allies within GM exerted powerful influence on the company's CEO, Jack Smith. He also won over an influential ally at Ford, the Chairman of its Board of Directors, William Clay “Bill” Ford, Jr., great grandson of the company’s founder.

At the Detroit Auto Show in January, 1999 Bill Ford personally introduced a new line of electric cars, under the brand name, THINK. Even though Honda and GM had abandoned the concept of an all electric vehicle by then, Ford said he thought there was still a niche market for such a car. Tellingly, Jac Nasser, Ford’s newly installed CEO, demonstrated his attitude toward these ideas by treating the visiting Secretary of Transportation, Rodney Slater, to a personal trip in a new Jaguar Roadster with the highest horsepower and worst gasoline mileage of any car at the show.

Right after that display of internal differences at Ford, Harry Pearce personally presided over the public introduction of General Motors’ PNGV hybrid prototype car, which delivered 80 mpg fuel efficiency, while seating a family of five comfortably. He then surprised everyone by revealing GM’s real vision of the future – a hydrogen fuel cell powered car called the “Precept” that got 108 mpg in its initial EPA tests. He grandly predicted that such cars would be on the road by 2010.

Clearly the industry was at a critical fork in the road. At a 2000 meeting at the Detroit airport, almost exactly one year to the day since their last meeting, Vice President Gore suggested to auto company executives that developing these products could enhance both the industry’s image and each company’s individual brands. Gore reminded his listeners, “It’s not just the substance of the issue you need to consider. You also need to think about the symbolism of the decision. Putting SUVs into the PNGV project would change the public’s perception of where you are going in the future.”

Jac Nasser wanted to know if such a commitment would change the dialogue between the industry and government. Gore suggested he would put his personal reputation behind such an agreement, which would garner the auto industry a great deal of positive press and appeal to the growing ranks of environmentally minded consumers.

But when it came time to put their reputation on the line, the auto executives blinked. The CEOs were not ready to commit to any specific production goals. This less-than-clarion call for a green automotive industry future made it only to page B4 of the Wall Street Journal the next day and was otherwise ignored by the rest of the public that the participants were hoping to impress.

Today, only Ford, the one American auto company not to ask for a bailout in 2008, is ready to offer a car that meets the original Clinton target. In showrooms in 2009, its Fusion Hybrid five-passenger sedan uses the hybrid technologies first explored in the PNGV to get 45 mpg in city driving, more on the highway, and costs about $30,000. As a result, Ford is in a much better position today to weather the whirlwind of change in consumer tastes and financial markets, even without the support of the federal government.

Unfortunately for America, General Motors, the largest of the Big Three, went in almost the opposite direction. Rick Wagoner, who became General Motors' CEO in June 2000, chose to pursue an SUV-centered strategy that won big profits for a brief period. Since then, however, GM stock has plunged 95%, from $60 per share to roughly $3 in late 2008. General Motors, which lost $70 billion since 2005, has seen its market share cut in half. Having failed to embrace a public partnership with a sympathetic government, Wagoner was forced to beg for a federal bailout with onerous conditions. Seven years after the fateful auto summit with Al Gore, when asked what decision he most regretted, Wagoner told Motor Trend magazine, “ending the EV1 electric car program and not putting the right resources into PNGV. It didn’t affect profitability but it did affect image.” [emphasis added]

Had the auto industry taken Gore’s lead a decade ago and built a positive image among the very environmentally conscious Millennial Generation, it might have built a constituency to support the government’s bailout. Instead, the companies’ brands, particularly GM’s, have taken such a beating that the President-elect recently reminded the car companies that “the American people’s patience is wearing thin.” In contrast to young Baby Boomers buying songs by the Beach Boys celebrating the Motor City’s products, the country seems ready to drive their “Chevy to the levee” and tell the company “the levee is dry.”

But that is not the right answer. Millennials bring not only an acute environmental consciousness to the country’s political debate, but a desire for pragmatic solutions to the nation’s problems that promote economic equality and opportunity. To secure Millenials’ support, however, the domestic automobile industry needs to be seen as a contributor in ending America’s dependence on foreign oil and improving our environment. Not only would such an approach assure the industry’s future profitability, it would also remake its image in a way that will appeal to both their future customers and the politicians they support.

Morley Winograd, co-author with Michael D. Hais of Millennial Makeover: MySpace, YouTube, and the Future of American Politics (Rutgers University Press: 2008), served as Senior Policy Advisor to Vice President Gore where he witnessed the events described in this article. He and Mike Hais are also fellows of NDN and the New Policy Institute.



















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President Barack Obama said

President Barack Obama said in an interview broadcast today that the U.S. government will recover taxpayer money spent to bail out the auto industry. But we are talking about a really hefty sum here... How will he do it ? I think that auto prices will go up so will the insurance because right now I can't seem to find any nice deals. Nissan Parts are more expensive than ever. It seems that the auto manufacturers will have a hard time selling (not like 2007 and 2008 when they did billions).

Everybody has a crucial part

Everybody has a crucial part in mitigating the effect of the global financial crisis we are experiencing. We must admit that even the high-earning business units are also in dejection.Ever since they went to Congress to request emergency funding, a lot of people have feared a GM shutdown. A GM shutdown is now more of a certainty than a possibility, as General Motors is coming short on a $1 billion debt payment, and they are forecasting a shutdown of all activity for at least 9 weeks. This is obviously a case beyond the scope of payday loans, as the auto maker is close to $30 billion in debt. The idea is to shut down production in order to reduce the backlog of vehicles left on lots, and the government has guaranteed warranties on all GM vehicles. Installment loans may not be able to stave off a GM shutdown.

Misguided Analysis

Al Cheesebrough

There are so many items in the article that are incorrect that I don't know where to begin. First of all before we lionize Ford for their efforts in producing hybrids and not needing a loan from the Federal government lets remember that Ford mortgaged everything, including the Blue Oval (which the financial community thought was stupid at the time).

Second, when the Prius was introduced, Toyota could not sell them until the price was significantly reduced. At the current reduced price, Toyota loses over $5,000/vehicle. I don't think that selling vehicles at a loss is a strategy for long term viability. Furthermore, every manufacturer that builds hybrids loses money on each vehicle, again this is not a strategy to WIN! Overall, at todays gas prices the number of people that are in the market for a hybrid (which are more expensive than base vehicles) is growing smaller everyday. I guess the American consumer is more worried about price than being green.

Third, when GM tried to sell the ill-fated EV1 vehicles (the original "Volt") to the state of California they declined (image that, the "green state" saying no!).

While the American Automakers were making record profits building SUVs and Pickups, the Transplants were begging their headquarters back in their home countries to builds these vehicles (can you say Toyota in San Antonio). In addition, the American Automakers were meeting the CAFE standards. Why is it okay for Toyota, Nissan, BMW, etc, to build these vehicles with huge tax subsidies from the various southern states that they do business in but GM, Ford & Chrysler are criticized for needing a loan caused by the most significant credit crisis since the depression? If we are so concerned about being "green" then there should be a federal tax that maintains gas prices at a floor of no less than $4.00/gallon rather than CAFE standards (recall the summer of 2008 and what happened when gas was at $4.00/gallon?).

Overall, it is extremely disappointing that the writers have decided to join the chorus of the uninformed when it comes their opinion of the US Auto Industry. GM, Ford and Chrysler will demonstrate that they are innovative, viable and can meet the demands of the American and Global customer.

It's a stretch

You make some good points, but it’s a real stretch to say the Big 3 should have focused on hybrids and they wouldn’t be in this mess. Your hypothesis is weak and seems conveniently contrived to fit hindsight and a story you wanted to tell. They wouldn’t have made it to 2008 without the SUVs given the unlevel playing field of healthcare costs, pensions, and ridiculous UNION wages (where’s your self admission of guilt there???). And look what happened when gas went back down and credit freed up… people who want or NEED large trucks and SUVs snapped them up, while hybrid sales tanked and Toyota halted their new plant….

You had to tweak your readership to evoke emotion by referring to the government LOANS as a BAILOUT. Did your friend and former MI Governor, Blanchard help secure a bailout for Chrysler in 1979, or was it a government loan guarantee?

And contrary to popular opinion in the tree-hugging state of California, for-profit businesses in a capitalist economy are not run on a mission statement to minimize their carbon footprint, they’re run to maximize shareholder value. Why did Toyota, Lexus, Honda, Acura, Nissan, Infiniti, Mercedes, BMW, Porsche, and Volkswagen all scramble to build SUVs and/or large pickups (which all guzzle more gas than GM’s fleet of trucks) in an attempt to catch up with the Big 3? Because they have a superior “green” business philosophy, or because they were seeking to maximize profits? And if the environment is truly the guiding principle of political debate, why wasn’t it even in the top 5 issues voters considered in casting their ballot in the 2008 election?

Having said that, it took a burning platform to get Detroit to take hybrids seriously….
The Big 3 have been myopic and need to look beyond the market in Detroit to understand consumer preferences, but the hippies in California need to take off their smog-covered glasses and understand no country can remain a world power based solely on an economy of services, entertainment, and fantasy.

Les Winograd

Not going to happen

My 22-year old daughter grew up with German (VW, Audi, BMW) cars driven by her parents.
Her first car was a VW Jetta.
Her current car is a VW Passat.

Her only experience with "American" cars is the rental car experience. Not much chance of her ever buying a Ford product and zero chance for a GM product.

Dave Barnes
+1.303.744.9024
http://www.MarketingTactics.com