I like the ploy by General Motors, Ford and DaimlerChrysler to stir up sales by offering employee-type discounts to consumers. I hate it, too.
As a consumer and someone who knows that as the auto industry goes—not just GM, anymore—so goes the country, the discount program sounded great. If people buy cars, SUVs, pick-ups, etc., it helps the economy. That's a good thing.
And I hate this marketing approach. Because as someone who covers the rubber industry, I know that the pull-ahead phenomena—people flocking to dealers to buy vehicles earlier than they might have, followed by a sales collapse—can come back to haunt rubber automotive suppliers.
The thing is, if vehicle sales slump, the auto industry must look for a way to boost profits. The first approach typically is to improve productivity at their factories. I question how much of that "opportunity" is left, since they've been doing just that for years and years. They can't build all their vehicles in China. Can they?
The auto companies also can institute yet another discount program to stir sales, which may or may not work.
Another time-honored approach to recover from a sales slump, one the rubber industry abhors, is called "taking it out of the supplier's hide." If sales and profits go flat, the auto companies typically demand price cuts from their suppliers. Then the parts suppliers must find ways to improve their productivity—which they also have been doing for many years—and try to mimic their auto masters and squeeze their own raw material suppliers for discounts.
Which doesn't work as well, by the way: Many of the suppliers are too big, have much more clout than the automotive component maker.
An ugly situation for rubber companies, indeed.
But maybe I'm just some harbinger of doom, I see the cup half empty, (insert your favorite cliche here). Fact is, GM was in a disaster mode when it initiated the employee-discount bargain in June—down in market share, lots full of unsold cars. Ford jumped in quickly, and DaimlerChrysler, although not in the same boat, was forced to join the cause, too.
And it worked. The "end of the 2005 year clearout" saw cars flying off the lots. All's well at GM, which didn't plan to renew the program when it expired Aug. 1 arrived, but then changed its mind. The discounts continue.
Now we skeptics can breathe easy, and continue to fret about the future.
Noga is editor of Rubber & Plastics News. His e-mail address is [email protected]