August 13, 2004
Tale of Two Cars: Once-High-Flying Saturn & Mitsubishi See Red in Struggle for Traction
Then, there’s Saturn, a personal beef for me that goes back more than a dozen years when, fairly fresh out of college, I was sold on Saturn as a company, a product and a philosophy. I eagerly awaited the day I would strut into the showroom and buy a brand new Saturn (whatever-it-was) and join the club! Except, when I walked in to test-drive one of the new models (at Saturn of Eau Claire Wisconsin, so we’re clear…), I got treated like gum on the bottom of the salesman’s shoe, who apparently didn’t take me for a serious buyer and essentially told me to buzz off. Since that day, I’ve sworn I’d NEVER buy a Saturn, if they were the last car company on Earth!
So, it is not without some schadenfreude that I read a pair of New York Times articles last week detailing both companies’ recent troubles in sustaining themselves in business.
For Saturn, it was the recall of some 246,233 (pretty much all) Vue sport utility vehicles when it was discovered in June that, in two rollover tests, the National Highway Traffic Safety Administration was unable to provide a rollover rating because the vehicle's rear suspension system collapsed.
That’s a “different kinda car” alright! Not once, twice:
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General Motors, the world's largest automaker, took steps on Thursday to mitigate problems both under the hood and in its financial reports.
John M. Devine, G.M.'s chief financial officer, said at an industry management conference here that the company would recall all the Saturn Vue sport utility vehicles it has made since their introduction in 2001. The announcement came a week after regulators said the vehicle's suspension had broken during new federal rollover tests.
"When we see something, we fix it - we jump on it right away," Mr. Devine said. "If you look at our quality record, we're not pleased with this and we're working very hard to make sure it doesn't happen again."
Adding to this costly recall news, GM (alongside Ford and Chrysler) has spent a ton of money elsewhere this year trying to cover healthcare costs, a huge disadvantage to competitiveness, all while Toyota seems to be the real engine of growth in the American auto industry:
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G.M. had more recalls in the first four months of the year than in all 2003. In a securities filing, it said Thursday that it had spent $400 million more than expected in the first half of the year to cover the cost of recalls.
The Vue was developed before a new government rollover test. Regulators have begun tests on new cars and trucks in an effort to reduce rollover-related fatalities, which now stand at more than 10,000 a year. They tested two versions of the Vue and the suspensions broke on both vehicles, halting the tests.
"It's a very aggressive test that went beyond, frankly, what we had tested," Mr. Devine said, adding, "The fix is to beef up the suspension system, and we're doing just that."
Consumer advocates had called for G.M. to initiate a recall.
"I think General Motors made the right decision," said Joan Claybrook, the president of Public Citizen. "It was the only decision."
Mr. Devine also reiterated how tough financial conditions were for domestic manufacturers, particularly because of high health care costs. Total costs for the Big Three automakers - G.M., the Ford Motor Company and the Chrysler division of DaimlerChrysler - reached $8.5 billion last year. G.M., the company with the most retirees, accounted for more than half of that.
"We in the U.S. have a serious competitive disadvantage that we have to deal with," Mr. Devine said.
High health care costs have limited the Big Three in slowing the advance of foreign competitors chipping away at market share. The president of Toyota, Fujio Cho, said on Wednesday that his company had been expanding so rapidly that its North American managers, especially those with training in its quality processes, were stretched thin, leading Toyota to make its regions more self-reliant on their own quality experts.
"Instead of having ample time to work with a small American management team, we are now rushing to add managers to handle new plants in Texas, Tennessee and Mexico," Mr. Cho said in a speech.
The Vue had been one of the bright spots in GM’s product portfolio, but these latest tests by NHTSA might sideline that success:
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Rollovers have been an area of increasing scrutiny because of surging sales of S.U.V.'s and pickup trucks, which are more prone to roll over than passenger cars because of their higher ground clearance.
This year, the traffic safety agency has been conducting its first rollover tests on a track. Previously, the agency used a mathematical formula, factoring in a vehicle's specifications, to predict rollover risk. Congress ordered the agency to devise a track test after nearly 300 people died in rollovers of Explorers equipped with Firestone tires in the late 1990's.
In the new tests, conducted at speeds of 35 to 50 miles an hour, vehicles are driven through as many as 10 maneuvers known as fishhooks. The maneuver simulates the kind of jarring swerve that might happen when vehicles drift off the road and then the drivers overcompensate while trying to recover.
The suspension of the four-wheel-drive Vue failed at 45 m.p.h., according to the agency's summary; the summary said the two-wheel-drive Vue had "a similar rear suspension failure" but did not say at what speed.
Several S.U.V.'s and pickup trucks have tipped up on two wheels during the new tests, indicating an imminent rollover risk. Vehicles do not actually roll over on the test track because they are equipped with metal wings, known as outriggers, to protect the test drivers.
Sales of the Vue were up nearly 17 percent in the first half of the year, according to the Autodata Corporation, as consumers appeared to consider smaller, more fuel-efficient S.U.V.'s in light of higher gas prices.
For G.M., the world's largest automaker, the Vue test results are the latest problem in what has been a difficult year for recall-related issues. The company recalled more vehicles in the first four months of this year than it did in all of 2003, costing it $200 million more than it expected in the first quarter.
Meanwhile, in Mitsu territory, the "turnaround" continues:
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With American sales of Mitsubishi, once one of the hottest car brands, in a free fall, the company's executives are trying to engineer a turnaround.
It could not come too soon for dealers and employees. "June was a terrible month. I sold 10 cars," said Maria Prendergast-Lunn, general manager of Auddie Brown Mitsubishi in Florence, S.C., 80 miles from the major metropolitan center of Columbia. A year ago the dealership sold 75 Mitsubishis a month.
Sales started picking up this month, but even so Ms. Prendergast-Lunn expects the dealership to sell only half the number of vehicles it did a year earlier. "I'm hoping to end July with 35 or 40 sales," she said.
Other dealers are struggling as well. The market share of Mitsubishi Motors North America, the United States unit of the Japanese automaker, has been halved in just a year, to 0.8 percent last month from 1.5 percent in June 2003, according to the Autodata Corporation. In June, the company's sales dropped 45.7 percent, to 12,301.
Mitsubishi announced last week that it would lay off 1,200 employees, or about a third of its work force in Normal, Ill., site of its American plant, where it produces the Galant sedan, the Eclipse sporty coupe car and the Endeavor sport utility vehicle.
Mitsubishi has also decreased its advertising. For years it pitched the brand to young consumers with cheap financing and emotional eye-catching ads set to the music of Average White Band, Iggy Pop and Republica. That strategy created some of its trouble because it suffered a high default rate on the loans. Analysts say that Mitsubishi needs to write off about $1 billion in bad loans.
"We were a brand on sale," said Finbarr J. O'Neill, the American company's chief executive, in a telephone interview. Mr. O'Neill, the former chief executive of Hyundai Motor America, was hired last September to succeed Pierre Gagnon who was blamed for the aggressive financing.
"Now we need to establish natural demand for the products," Mr. O'Neill said.
The American sales slump has been a big factor in the struggles of the Japanese parent company, but not the only factor. Mitsubishi has also suffered from a cover-up of defects in its cars and trucks for decades.
In April, Mitsubishi's minority owner, DaimlerChrysler, decided not to invest any more money in the troubled carmaker, and Mitsubishi had to scramble for money to cover its debts. The Phoenix Capital Company, a Tokyo-based investment firm, bought a third of the company, replacing DaimlerChrysler as the controlling partner.
The parent company's financial and quality problems make Mr. O'Neill's battle to reverse the fortunes of Mitsubishi tougher. The American unit has only two new models coming in the next several months, a redesigned Eclipse sport coupe and a small truck built by Chrysler.
"It takes time to get all of this done," Mr. O'Neill said, "and we also are under financial pressures."
He added: "We are doing what we need to do. I just wish I could speed up time."
Mr. O'Neill is familiar with time-consuming turnarounds. When he took over as chief executive at Hyundai in 1998, the brand was on the skids. It was selling fewer than 100,000 units a year, and dealers were disgruntled. Over the next six years, Mr. O'Neill pushed hard to solve the company's quality problems, offering one of the industry's longest and most extensive warranties. This year, Hyundai's sales have had double-digit increases, and the brand has snagged top spots on quality surveys.
At Mitsubishi, Mr. O'Neill is using some of the same strategies. Earlier this year, he introduced a 100,000-mile warranty on vehicles, and he is promoting it this summer.
"I want to get rid of any objections that people may have had with our cars," Mr. O'Neill said.
He said the company also had to focus on "what is Mitsubishi's reason for existence?" His answer is to cast Mitsubishi's vehicles as performance-driven alternatives to some of the country's most respected brands.
"I like to think there's a little bit of Evo in all of our cars," Mr. O'Neill said, referring to the Lancer Evolution, a small but powerful car that has won at the World Rally Championships and is a favorite among young adults who "tune" their car's engine for higher horsepower and performance.
Advertising for the redesigned 2004 Galant midsize sedan introduced earlier this year, pits the car against the Toyota Camry in a high-speed crash avoidance test. The cars follow two semi-trucks from which two men are throwing everything from bowling balls to barbecue grills in front of the two fast-moving cars. Each car swerves to miss the obstacles. Finally, two old cars fall out of the back of the semis and the Galant and the Camry swerve to miss them. The Galant deftly maneuvers around them while the Camry is left in the dust.
On the company's Web site, Mitsubishi also claims that the Galant brakes faster from 70 miles an hour to zero than Camry and Accord and accelerates faster from zero to 60 miles an hour. Automotive Marketing Consultants Inc., which conducts tests to support advertising claims, said its tests had verified Mitsubishi's claims.
This summer, seeking to get people behind the wheel of its vehicles, Mitsubishi is inviting thousands of consumers to re-enact the tests at special "ride-and-drive" events in 10 cities.
The hands-on tactic has become increasingly popular with automakers. General Motors and Audi have offered 24-hour test-drives.
Ms. Prendergast-Lunn credits the new advertising and the new warranty for drawing more buyers in July. "I feel that this campaign is the best that we've ever done," she said. "We've put out the best warranty, and if that doesn't bring people in, I don't know what will."
But branding experts and other dealers say that the warranty and the side-by-side comparisons are going to be a hard sale against well-established brands.
"It's tough to win by contrasting your features against the competition when you are trying to reinvent a brand," said Erich Joachimsthaler, chief executive of Vivaldi Partners, a brand-consulting firm in New York.
"Consumers already have made up their minds," he said, "and it's tough for consumers to 'unlearn' what they think about a brand."
Some dealers also doubt that the comparison strategy will set Mitsubishi apart.
"You just can't go head-to-head with Toyota or Honda," said Ernie Boch Jr., owner of Boch Mitsubishi in Norwood, Mass., who is set to open a $5 million showroom in the coming months.
"Mitsubishi has to understand that it's a niche brand. They have to brand the car. They have to do something better than anybody else."
Whether Galant is better than Camry and Accord, I can’t say – but I can say, despite the Camry recall recently, they can’t be that much worse if, like me, you buy cars planning to drive ‘til the wheels fall off.
- Arik
Posted by Arik Johnson at August 13, 2004 08:52 AM | TrackBack
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