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Detroit’s Perception Problem

February 28, 2007 on 7:28 am | In Money |

Honda Motor (http://host.businessweek.com/businessweek/Corporate_Snapshot.html?Symbol=HMC) should have a warm spot in its heart for the Ayatollah Khomeini. If his followers had not overthrown the Shah of Iran in 1979, the company might still be best known for making motorcycles.

By the time of the Iranian Revolution, the small Japanese automaker had won critical acclaim for both its 1973 Civic and 1976 Accord, but when the Shah’s fall led to a subsequent energy crisis, suddenly its small cars were in demand. Sales of its four-door version of the Accord and its pseudo-sports coupe, the Prelude, took off. Soon, the company demanded that its dealers build separate facilities for the sale of its products. (Before that, Honda products were often the secondary line for many of the nation’s General Motors (http://host.businessweek.com/businessweek/Corporate_Snapshot.html?Symbol=GM) and Ford (http://host.businessweek.com/businessweek/Corporate_Snapshot.html?Symbol=F) dealers, much as Buick dealers once sold German-made Opels, Pontiac dealers handled British-made Vauxhalls, and Chrysler dealers apologized for distributing French-made Simca vehicles.) The Japanese had finally arrived.

Even though these early Hondas and Toyotas were not without flaws—Hondas had a nasty reputation for fenders that rusted from inside and engines that could stutter from time to time—they delivered exceptional mileage. But the final act that put the Japanese on top came not from their design engineers or marketing departments, but from Washington: In an attempt to help save Detroit, the Reagan White House forced voluntary import quotas on Japanese cars.

What followed was a prime illustration of the Law of Unintended Consequences. Reagan’s Halo Blunder

Instead of giving Detroit time to get back on its feet, the new quotas kept Japanese cars in short supply. Car buyers often had to wait for six months or more to move to the top of their dealer’s allocation list for new Accords or similar Toyota (http://host.businessweek.com/businessweek/Corporate_Snapshot.html?Symbol=TM) or Nissan (http://host.businessweek.com/businessweek/Corporate_Snapshot.html?Symbol=NSANY) products. And waiting created anticipation, which lent a halo effect of mythic proportions to all Japanese products, helping even import cars that weren’t as wonderful as our short memories insist.

Reagan’s import quotas also led the Japanese to develop whole new lines of vehicles. Because the proposed new divisions weren’t named on the quota list, they could be brought to America exempt from Washington’s import quotas, returning even greater profits to their corporations. You know those firms today as Lexus, Infiniti, and Acura.

What great irony. Washington’s good intentions to save Detroit 26 years ago put Japan’s automakers on the map permanently with the American public. Moreover, it happened at a critical juncture: Just five years earlier, the 84 million baby boomers had started turning 30.

In that period, the boomers left behind their ’60s idealism; they began to bow to the need for caution and security as they settled down and started families of their own. The only passion from the ’60s that this generation never lost was for automobiles. Even today, according to Art Spinella of CNW Marketing Research, the baby boomer generation (those born roughly between 1945 and 1965) outspends the 18-to-49 age demographic on automobiles and automotive services by 3 to 1. That’s just more bad news for Detroit, because this generation’s final likes and prejudices were formed on its personal chariots during the oil and financial crises of 1979 to 1982. Changing A Bad Perception

For Tom LaSorda at Chrysler, Rick Wagoner at GM, and Ford’s Alan Mulally, the mission of saving their firms is far more complicated than just delivering exceptional products at reasonable prices. The real task at hand is to undo the effects of three decades, in which the Baby Boom generation came to believe that only Japan offered real value while delivering exceptional quality.

Think of the rare runaway successes that Detroit has had in the past 30 years: All support the hypothesis that once the baby boomers passed 30 and had their own families, they increasingly tended toward safety and security. That maturation fully explains the popularity of the 1984 Chrysler minivans and the sport-utility craze of the ’90s. An exception has been the success of retro sporty cars brought to market, from the current Mustang (see BusinessWeek.com, 8/15/06, ) to the upcoming Dodge Challenger and Chevrolet Camaro, but it’s misleading. What their popularity represents is the baby boomers’ love of what Detroit once meant to them—not their wholesale or widespread approval of the Big Three’s offerings today.

That’s a shame. Detroit can no longer just bring great new products to market and sell them. Instead it faces the far more difficult task of changing a perception that this generation has held for 30 years. And when Detroit pulls out its six-shooter to take its best shot, half of the bullets inevitably hit its own feet—when U.S. manufacturers do bring out exceptional vehicles, they often seem incapable of convincing a skeptical public of their real value.

One case in point might be the new Saturn Aura (see BusinessWeek.com, 10/4/06, ). With a five-star safety rating, a more than competitive price and strong styling both inside and out, it also has the most remarkable ride and drive of any midsize sedan in GM’s history. In a direct comparison against the newest generation of the Toyota Camry, the Saturn is the superior car for those who truly appreciate a fine automobile. But it’s not the automotive reality that matters to the car-buying public these days, it’s the perception. A Star Becomes a Crown Vic

In this case, the public believes that Toyota usually has the superior resale value and quality (an accurate assessment). And your neighbors will understand if you park a new Toyota in your driveway, but might question your logic if there is a new Saturn on the block: It’s considered the “safe” decision to get a new Camry, even if it means you walked away from the superior Aura. The proof is that Saturn sold just over 5,800 of its new Auras in December; Toyota sold almost 40,000 Camrys.

Chrysler had a different situation when it introduced its outstanding 300 sedan, for it had managed to do the impossible. Suddenly the car-buying public became enthralled with this new sedan out of Detroit. Many Chrysler dealers quickly found more than a few high-end, imported, luxury sedans being traded in for a 300. And it wasn’t just the car’s sharp looks that attracted the public’s attention; the 300’s superior ride and handling characteristics won over some of the most jaded buyers in the marketplace. The rush of impulse buyers didn’t echo as strongly when the platform-sharing Dodge Charger debuted, but that’s irrelevant now; Chrysler has managed to start killing both cars in the market without realizing what it has done.

That’s because in many areas of the country we are now seeing police departments and taxi companies purchasing fleets of Dodge Chargers. There is no surer way to destroy a car’s image or its retail value than to sell it for taxis and squad cars. Looks like Chrysler has taken its halo automobiles and turned them into another Crown Victoria. Delusions At Ford

One never knows which Ford Motor Co. is coming to play in the big game. Is it the Ford that can create some of the most remarkable and value-laden products in its history, such as the