Thirty-three years ago, Phil North walked into my office at a downtown Oldsmobile dealership and wanted to order a full-sized Oldsmobile Custom Cruiser station wagon. Now, station wagons had been dying for a decade; the full-sized versions’ sales had fallen off first, followed shortly by the midsized wagons’. In fact, I can remember only two special orders for GM station wagons from 1977 to 1985. The first was for Rollin King, one of the founders of Southwest Airlines, who wanted one in dark blue with red interior. The GM computers would not accept the order because of the color combination; it took a call to GM to get that one built. Then there was Mr. North.
He was kind of a crusty old guy, not rude, but one who really wanted to tell me how to do my business. That was fine with me; his was a personality type I had dealt with many times. I knew he had been a friend of Charles Tandy, and that day he informed me that he was great friends with Roger Smith, then CEO of General Motors; the two of them sat on another company’s board of directors.
North gave me the specifications for the wagon he wanted and told me just to put it into the system, but not “preference” it for production. Instead I was to call and give him the order number. He would relay it to Roger Smith’s secretary at GM, Maryanne, and they would put him at the front of the line for production.
I informed him that, since it was a slower selling model, if we simply put it into the GM system it was likely to be built within one or two weeks anyhow. North dismissed that out of hand. So, we did it his way — and six weeks later, still no station wagon. That’s when he walked into my office the second time, demanding to know where his vehicle was. I replied, “Phil I’m not handling this; you are, with Roger Smith.”
Well, he called Maryanne at GM and asked about his order, and she very curtly replied, “Mr. Smith isn’t doing that for people anymore.” Now, I don’t know whether Phil North was crushed or just embarrassed, but the way Smith’s secretary treated him that day, for no reason whatsoever, put me firmly on his side. They should have told him that six weeks earlier, and I could easily have gotten his station wagon for him. Better yet, they could have made one call to that plant and gotten his station wagon built for him.
The Circle of Life
This story shows how station wagons were already dying in America decades ago. And then came the Chrysler minivan, introduced the year before my encounter with Mr. North, which was the final nail in the coffin of station wagons. Within a year Toyota started exporting a minivan to America, but the Chrysler product was king and Toyota never seriously challenged that for decades.
Only when the second generation of the Honda Odyssey came out in 1998 did the minivan equation start to change. But by that late date minivans overall were becoming passé, thanks to the original Ford Explorer’s runaway success.
Another quick Roger Smith story: According to Comeback, a book by Wall Street Journal reporters Joe White and Paul Ingrassia, GM managers wanted badly to build a competitor to the Ford Explorer by making a four-door version of their Chevy S-10 Blazer. Smith kept turning down that request — so often that he finally issued the edict that anyone who brought it up again would be terminated.
So station wagons started dying by the late Seventies. They were replaced by minivans, or more specifically by the Chrysler minivan, in the mid-Eighties; then that market started dying off in the mid-Nineties due to the rise of SUVs. Of course, most people see their self-image in what they choose to buy and drive. Mention a minivan as the more practical vehicle to a mom with kids in school today, and the response is swift and short: It’s an SUV or nothing. Minivans still exist and sell in decent numbers, but they aren’t the hot new thing they were three decades ago.
Over the past few years, as more and more Baby Boomers have written asking what vehicle to get for their retirement years, when they want to travel the country, so far no one has asked which minivan to get. No, they all wonder which of multiple SUVs would be the best for the money. Many have asked about the best SUV if they take their dogs along on vacation; AAA actually publishes a book listing dog-friendly places to stay and even diners that are pet-friendly. Again, when traveling with pets the most functional vehicle is definitely the minivan — but again, no takers.
Today it appears that the family sedan is headed for the same fate as station wagons and minivans. GM’s car sales are off almost 20 percent this year and Ford’s are down nearly 15 percent, which was low enough for Ford to say it won’t build sedans in the future. Hyundai’s are off 25 percent, and even Honda’s car business is off 12 percent. In April nearly 70 percent of all vehicles sold in the U.S. were considered light trucks, a category that also includes SUVs and crossovers.
Alongside Ford’s claiming it will dump sedans in the future, Chrysler has already done so with its 200 sedan and the Dodge Dart. In fact, it seems as if the only growth in sedans worldwide has been in electric cars; the rest seem to be flagging.
Of course, gasoline prices could change that situation quickly and restore many sales to the more fuel-efficient sedans. And it should be noted that, in spite of the national statistics, large volume dealerships in the DFW area still do an outstanding job with many sedans, whether they’re Lexus ES350s, BMW 5 Series, or even Altimas and Camrys.
Electric, or Heavy-Duty?
Now, after Ford’s amazing announcement on the future, or lack of for its sedans, and Chrysler’s already dumping two of its models, soon-to-retire Fiat Chrysler head Sergio Marchionne has announced his five-year plan for the company. More Maseratis, more Alfas, more Jeeps, and more Rams. The divisions to be downsized will be, ironically, those in the company’s name — Fiat and Chrysler.
If it were anyone else one might question that logic. But with Marchionne it’s worth considering; his last five-year plan in 2014, at which the entire automotive media world and its market analysts scoffed, has mostly come in right on schedule and hit profit projections. As for the logic of those four divisions marked for expansion, Marchionne says they account for 80 percent of the entire company’s profits. So, given the small volumes internationally for Maserati and Alfa Romeo, it’s really down to Jeep and Ram. Or, light truck sales in America.
Just a few years ago Sergio Marchionne went on record begging the citizens of California not to buy the company’s fully electric Fiat 500, since the company was losing $10,000 on every one it sold. In this new scheme Fiat may well become a much smaller company in Europe and be based primarily on electric cars. Keep in mind that today the Fiat 500 is one the best-selling minicars in Europe, with total sales of nearly 200,000 vehicles per year. But the handwriting is on the wall in the EU; many countries have claimed they will phase out diesel- and gasoline-powered automobiles within a decade or two, while cities such as Hamburg and Paris are starting to ban diesels from their centers. In Marchionne’s mind, diesel are a thing of the past and more electrification of cars the future.
As stated previously in this column, the cost of battery packs for electric cars has dropped dramatically over the past six years, from around $750 per kilowatt hour to Tesla claiming a cost of $245 per kWh before it launched its Model 3 last year. Then GM claimed the battery packs in its Chevy Volt would cost $145 per kWh, after which Audi claimed that battery packs for its upcoming electric cars would cost $104 per kWh. No telling whether those are truly accurate figures — but all have been published with sources on the newswires.
Likewise, China is seeing a huge push for electric vehicles; this has been coming for some time. Even Warren Buffet’s Berkshire Hathaway made a huge investment, almost a quarter of a billion, in BYD Automotive a decade ago, and after that Samsung invested $400 some-odd million in the company. The BYD purchase was made because of the company’s expertise in electric vehicles and battery packs.
So there’s little doubt that Europe is at least entertaining a shift toward electrified, if not fully electric vehicles, while China’s commitment is more forceful. However, none of that squares with Marchionne’s five-year plan for Fiat Chrysler in the U.S., in which the push will be to sell more Jeeps and Rams. And in the case of Jeeps, worldwide as the name carries considerable cachet.
The Smart Money
Nobody knows for sure where anything is going. Two years ago all of the business media and oil analysts were discussing how many jobs were being lost in the oil patch and how shale drillers were falling like flies, using bankruptcy courts to shave their debts. Today we are on the cusp of setting an all-time record for U.S. oil production, something no one was forecasting 24 months ago; almost 50 years ago we were told we’d hit peak oil and never see those production volume numbers ever again. Still, oil pricing does affect the car business, and it’s fair to say that a return to $4 gasoline would once again move the percentage of sales between sedans and light trucks.
However, here is one forecast that will prove to be dead accurate. The used car market follows the new car market by just a few years. Now that we are at the point where, in most months, 7 out of 10 new vehicle sales are either trucks, SUVs, or vans, in a couple of years’ time, that’s the exact same percentage of those vehicles that will show up on used car lots around America for sale.
More important, the hotter a vehicle is new, the hotter and higher price it carries used. The day of the $1,000 cash car — a used car that people came in and paid cash for, because that’s what they’d saved up to buy a car — passed decades ago. It’s often hard to find an exceptional used car for five grand today, and anything under $10,000 moves very quickly off any used car lot. Trucks and SUVs historically bring even more money.
A statistic published last week at CityLab.com claimed to illustrate why kids today aren’t in love with automobiles the way the three previous generations of kids were. The article pointed out how in 1983, 46 percent of 16-year-olds had a driver’s license, but in 2014 that number had fallen to just 25 percent. They correctly pointed out that many states now have graduated licensing laws on the books.
But in the next paragraph they really got down to the crux of things: A few years ago only 25 percent of all kids between 16 and 18 had licenses if they were from a household earning less than $20,000 a year. But households with annual incomes over $100,000 show 75 percent of their kids having a driver’s license.
That’s a function of income stagnation at the bottom, against the entry-level cost of the most basic used car. That’s only going to get worse in the next few years, at least if the economy keeps moving forward. There’s your solid bet.
© Ed Wallace 2018
Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, bestowed by the Anderson School of Business at UCLA, and hosts the top-rated talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. Email: firstname.lastname@example.org