Sometimes we face tough business decisions in which our business interests conflict with our business principles.
Many of us probably have been feeling a little like that as we weigh our free-market roots against the grim news coming out of Detroit and the proposals for rescuing U S car and truck manufacturers.
Successful businesses tend to be built from scratch by hard-working entrepreneurs who would prefer less governmental involvement in their business, not more. It takes a lot for independent businessmen to ask the government for a handout — even if the assistance is targeted for somebody else.
But that's exactly what happened this month as car dealers, truck equipment distributors, NASCAR fans, and myriad others whose interests and livelihoods depend on a strong auto industry recently petitioned Congress to rescue America's automakers. The lawmakers rejected the request, leaving Detroit — and Wall Street — wondering what happens next.
Losing any one of the Big Three would be especially devastating to the truck equipment industry. While it is dangerous for a company to depend exclusively on a single customer or two, truck body manufacturers and truck equipment distributors have little choice but to hitch their fortunes at least indirectly to the handful of companies that manufacture trucks. And our industry mounts the largest number of truck bodies and equipment on chassis built by the same auto manufacturers with the severest financial challenges.
Our industry has a saying: a chassis is of little value without a truck body and equipment on it. But the reverse is also true: our products have little value unless they are mounted on a truck.
Let's take a look at how closely the commercial truck body and equipment industry relies on these three companies: Chrysler, Ford, and General Motors. If we discount Classes 1 and 2 trucks as primarily personal use vehicles, and we recognize that Class 8 consists mainly of highway tractors, we are left with the heart and soul of the commercial truck market — Classes 3-7.
According to figures compiled by Ward's Communications, Ford, GM, and Dodge combined to account for 97% of Class 3 trucks, 68% of Class 4 trucks, 86% of Class 5 models, 22% of Class 6 trucks, and 17% of Class 7 trucks sold at retail this year. Given that level of dependence, truck equipment manufacturers and distributors have a lot riding on the future of these companies.
Now that Congress has rejected the request for federal assistance, what's next for the auto makers? While finding other sources of financing will buy more time, ultimately Detroit must figure out how to address two sets of legacy costs. The first legacy costs involve overall compensation packages that make it difficult to compete against their international rivals. But perhaps a more formidable hurdle to overcome is the legacy left by years of poor quality and uninspired products. Chrysler, Ford, and GM generally have closed that gap in recent years, but that albatross remains.
At an NTEA Truck Product Conference a year ago, a GM representative pointed out that Toyota had recalled more vehicles the previous year than it had sold. Yet it is Toyota, not GM, that has the reputation for quality. He also made the point that the Tahoe/Yukon gets better fuel economy than the comparable Toyota Sequoia — but Toyota is the company with the reputation for fuel-efficient vehicles. Whining or reality? We tend to believe that far too many Americans still will not consider buying a Big Three product because of memories of what Detroit used to offer. And when Congress needs a 60% vote to approve a rescue package, it does not take many people lugging these memories around to tip the scales.
Until the domestic manufacturers can overcome this legacy cost, Detroit will be at an unfair advantage. And it doesn't help when the nation watches Detroit's CEOs flying the corporate jets to ask Congress for a handout. The Big Three needs to do everything possible to convince customers — and voters — that Detroit's CEOs are in touch with them.
Detroit has to win back the hearts and minds of America. If the product that the Big Three produces matches up with international competitors, we as an industry need to help get the word out. Because sending money to Detroit for a car is far more desirable than sending the money to Detroit for a loan.