Business Week recently published a great article about the U.S. car industry. “Automakers Go on the Small-Car Offensive” asks some provocative and important questions. What will happen to GM and Ford’s nine new small car models “without the incentives of high gas prices and Federal subsidies?”
Interesting proposition to contemplate. After all, we Americans like full size sedans, station wagons, hybrids and SUVs. Given this economy, fewer discretionary dollars, undulating gas prices and a Federal government’s recent Cash for Clunkers program, small cars are selling. But for how long?
As the article states: “And what happens when high gas prices or government handouts go away? Americans buy what they want.” Exactly.
Since vehicle designs must be planned three or four years out, and increased fuel efficiency is required by the government, the question is: will the Big Three be able to roll out the cars Americans really want to buy? Or will the decisions being made today force more of us to purchase foreign cars than ever before? These are important questions.
Here’s the kicker: in spite of the fact the government is pushing small cars, gas prices can fluctuate wildly and incentives are being given to consumers to go smaller: Americans don’t like small cars. This is a classic marketing case study in the making. Give the consumer what they want and they will buy. Give the consumer what you want to make and have them buy and good luck!
Take a gander at this telling part of the article: “Carmakers badly want to believe that Americans like small cars. Eric Noble, president of the CarLab, a consulting firm in Orange California, says several European and Asian carmakers have hired him to do consumer research on small-car demand. When consumers gave them the thumbs-down, the clients asked him to rewrite the questions to see if that would change the result. It didn’t”.
The American consumer’s view:
- Small cars are unsafe.
- Small cars are for people who can’t afford better cars.
- Small cars don’t offer the power, space and cargo room of family sedans and SUVs.
The American car manufacturer’s response:
- During the recent Cash for Clunkers program, carmakers spent “about $1,900 per compact to help spur sales”.
- Carmakers are loading small models “with creature comforts and technology in hopes of winning customers and charging them a premium.” So much for the cheap compact car.
- More and more investment is being made in rolling out smaller cars. By 2013, all American and foreign compacts combined will total 600,000 cars in a market where 2.5 million are sold.
Questions:
- What kinds of incentives would be required for you to purchase a small car?
- Since fuel efficiency continues to increase, do you think it unwise for American carmakers to push smaller cars when consumers clearly demonstrate they want to purchase family sedans and SUVs?
- What do you think will ultimately happen to the U.S. carmakers if they don’t make the kinds of vehicles most consumers want to buy?
I’d love to hear from you.
Related posts:
After being in two accidents that have caused medical issues that will never go away, you couldn’t pay me to drive a small car. I have a Jeep Commander and love it…safety, comfort and I can fit LOTS of stuff in it (including my dog — she’d never fit in a Smart car!).
“What do you think will ultimately happen to the U.S. carmakers if they don’t make the kinds of vehicles most consumers want to buy?”
Personally, I think we will be forced to buy smaller cars due to government intervention and it won’t matter what’s produced. Even if foreign car companies try to sell what we want (larger vehicles), the tariffs/taxes will be so high that they won’t be affordable anyway. That said, I really hope I am wrong. It will be interesting to see what the next 5-10 years brings.
BTW, I am not shocked that the questions were re-written to garner answers that were wanted. That’s why we need to be cautious with this type of research.
Beth Harte
Community Manager, MarketingProfs
@bethharte
Thanks, Beth, for your observations. I appreciate your weighing in on this. Couldn’t agree more. I’ll say this, regardless of government intervention or anything else, consumers will purchase what they want to. Given a marketplace like ours, consumers vote with their wallets, and some carmakers will go out of business unless they find a way to combine better fuel efficiencies with the features we want. Government policies have a way of changing and rising consumer dissatisfaction has a way of making that happen.
Consumer surveys and focus groups often leave me dissatisfied at best and suspicious at worst. Biased questions are problematic. So are “herd mentality” answers. They lead to manufacturers getting the answers they want to hear–not the answers they need to hear.
Ted, from what the “experts” are telling us, gas prices will rise substantially in the next 2-3 years – just in time for many of the newly-developed smaller, more efficient cars to reach the market. Maybe, even when our entire economy is transforming away from globalism and more to localism.
When more Americans purchase smaller cars, the risk of collision with a big vehicle is reduced. Besides, isn’t this the “right” thing to do to avoid more global climate change? People in Canada and Europe drive more small cars than in the U.S. Why is that?
Hi Elaine,
Consumers may change but I don’t think that will happen overnight. Europeans have driven smaller cars because the taxes on gasoline have always been prohibitive. That’s the #1 reason. Also: have you seen how narrow some of the roads are in Europe?
My point is: it’s hard to force change; in an open marketplace, consumers call the shots.
Thanks for asking great questions and making excellent observations, Elaine. I appreciate it.
Good discussion Ted! Small doesn’t necessarily mean unsafe. An example; the Chevy Cobalt with 25/37 MPG and pretty decent front/side crash test ratings. Take a look:
http://usnews.rankingsandreviews.com/cars-trucks/Chevrolet_Cobalt/Safety/
Thanks for weighing in here, Paul. You are right. With many new safety features, some small cars are better than they used to be in collisions. Notwithstanding, a large number of Americans prefer to drive larger cars, trucks or SUVs and that’s the point. So how do you propose we get our fellow citizens to take a more serious look at smaller vehicles, Paul? Just curious. . .
Ted, great and provocative post, as usual.
What I like the most is that, apparently, Americans are still reluctant to understand that the world has some limits. Bigger cars, bigger burgers, bigger houses are all element of a cultural revolution that America must face to turn into small cars, small burgers, small houses. I understand Beth point of view but crash test can deliver surprising result. The Chrysler Voyager had horrible crash test result according with European standard, far worst than a Smart.
My take to get Americans taking seriously smaller cars? Size doesn’t matter!
Gianandrea,
Every marketplace around the world is a reflection of its culture. Americans work hard, dream big and think big. We always have. Our country is large and expansive. We also have a network of large interstate systems and wide roads. Try crossing the U.S. in a sub-compact; it may not be the most comfortable experience! Unlike Europeans, we haven’t put so many high taxes on gasoline in the past that made driving larger vehicles prohibitive. We’ve downsized cars on occasion; the oil embargo, sharply rising oil prices due to much higher consumption in China, India, etc, forced the issue. But those were “temporary” deterrents. On the practical side, many of us carpool, take turns bringing the neighborhood kids to school, lug the kids and their sports equipment to games and practices, etc. We like to be able to do all of those kinds of things and that calls for vehicles with lots of roominess.
Thanks, Gianandrea, for your questions. It’s always interesting to converse with people who have different perspectives.
Paul, Elaine & Gianandrea,
I totally get people’s perspectives about the environment and bigger is not always better…
But when I see a Smart car tailgating my Commander and cutting me off on the highway (yep, this has happened about 5x) I think “that person’s not so very smart, are they?!” My car (even at reduced speeds) would crush a Smart car and it would, unfortunately, be fatal. That said, when it’s my car versus a tractor trailer or another SUV, you bet I’d rather have my car and hope to survive to live another day.
I think it would be unfortunate if our government took away our market freedoms to drive the cars we choose to. Just my $.02.
Beth,
Your $.02 is just as valid as everyone else’s. Your perspective has been shaped by your experiences and that does a great deal to temper our market choices, doesn’t it? Thanks for sharing your POV with us.
This seems like a strange blanket statement to make to me–that American’s don’t like small cars.
I imgaine that whether or not you like or would consider buying a small car has a lot to do with where you live–are urban drivers only looking for large automobiles?–and the purpose/occasion for which you are considering a purchase.
I can’t drive down the street without seeing a Prius on the road! Three of my neighbors have one sitting in their driveway. They didn’t buy them because they got some sort of deal from the government or simply because of the price of gasoline. They WANTED a small car. They did NOT want an SUV. They did not want a big family sedan. They did not want a sports car or a luxury automobile.
The thing car companies need to think about is that “small” is not the key selling point–it’s the price of entry. Great to have a small and fuel-efficient entry in a category–GM for one would certainly do itself a world of good to just build awareness it has SOMETHING to offer here. But to beat out competiting products will take something more.
I think there are plenty of American who like small cars and would prefer to buy one. The trick for car companies will be to identify who they are and udnerstand what’s motivating them to look for a small car.
Kevin,
You’ve made some very salient points and I thank you. There is no doubt that Americans are buying small cars because they want to. Still, in survey after survey, Americans have stated a clear preference for larger vehicles. It’s funny but when looking around in NYC, for example, you’d think there would mostly be Priuses due to crowded streets and tight parking. You do see small cars, but many are also driving around in Hummers, so go figure. . .
What you said here is right on the money: ” The trick for car companies will be to identify who they are and udnerstand what’s motivating them to look for a small car.” Exactly. But as the article pointed out, the Japanese have decades of experience building small cars and they already know what the consumer is looking for in a smaller vehicle. In Asia as well as Western markets. It will probably take U.S. carmakers time to figure this out in a new learning curve. Question is: how much time do they have?
Smart comments as usual, Kevin. I appreciate your weighing in here.
I think the point that “Americans buy what they want to” should give some hope to the U.S. car companies looking to tap into the small car market.
I wonder whether the average small car buyer really cares anymore if they are buying a Toyota, a Honda, or a Chevy. Or do “they buy the car they like.”
I don’t know that the Japanese companies have any sort of corner on the market on what small car consumers want. They do a more consistent job of talking about the entries they have in these markets, that’s true, so buyers are more aware of Toyota’s offerings. But that doesn’t mean there aren’t buyers who might be open to considering GM, Chrysler, or Ford.
Ted, believe or not, but European roads are packed with Suv e big cars, too. In Rome is not unusual to see people driving BMW X5 or Mercedes ML. Not at all. Nor we are talking about Beth feeling about being in a huge car rather than in a small car. Still, as I believe that marketing can shape in someway people’s opinion, I think that we will see more and more small cars around in the US, too. It’s not just a matter of forcing someone to do something but to make people thinking about a lifestyle that is no longer sustainable. Myself I drive a Land Rover Defender, which is rather a big car. Why? Because I have three dogs, I do not use the car in town and drive less than 10k miles a year. When I bought it, I made a calculation about my impact on environment and wallet. I think that this is what is going on in the US market.
How fast American car industry will embrace this revolution? I believe that it could be faster than we think. FIAT/Chrysler deal is going in this direction.
Kevin,
If U.S. carmakers try to understand the things consumers want in smaller cars, and deliver them, they too will sell small cars. Will they sell as many as some Japanese automakers? Probably not. My reasoning: Japanese cars have developed a reputation for high quality, resale value and technology-driven innovation for the past few decades. U.S. carmakers will have to catch up on all of these fronts. I’m not so sure most Americans don’t care whether they’re buying a Toyota or a Chevy when it comes to choosing a small car.
The question is: will small cars account for most of the sales in our market? Unlikely in the short term. Due to instability in oil-producing countries around the world and the volatility in crude pricing, if oil does hit $200 per barrel, that will force the issue once again in a major way.
This is a very enjoyable conversation, Kevin. I really appreciate your sharing your thoughts and expanding on the ideas presented by my post.
Gianandrea,
Thank you for sharing your terrific insights. You’ve hit on some very important points.
First, in outlining your own choice in a car, you’ve shown that personal preference and needs weight heavily in consumer decision making. You chose a larger vehicle because you needed the space for your three dogs. A marketplace filled with choices enables consumers to weigh their options and factor in cost of the car, costs associated with operating the car, and what they require their car to do for them. Exactly.
Marketing tactics won’t force consumers to change their thinking. As I just mentioned to Kevin, if crude hits $200 per barrel, that will change thinking.
If some Europeans are driving larger vehicles now, they are ponying up some serious cash. The liter price on gasoline is very high in Europe. Again, they’ve made a choice for their particular needs–or they want to show the world they’re more affluent. . .just as many of us do.
Car makers of every kind, and in every part of the world, are struggling to make their vehicles more environmentally friendly. Governments everywhere are raising standards and consumers themselves are becoming more aware. In the long run, that’s a good thing. . .and so is consumer choice, as Beth pointed out.
I am enjoying this conversation very much, Gianandrea. Thanks again.