Ed Wallace

Love That Hype

By Ed Wallace

The legendary but personally troubled former GM executive, John DeLorean, once related in a semi-official biography that he came to the decision to leave General Motors during one of his corporate speeches. He was going on about all the great features and engineering improvements that would be seen on the next model year for certain GM products; while delivering that talk, he said, he realized that everything he was hyping was in fact nothing more than nonsense, and the next model year product was essentially the same as the one they were currently selling. Yet that confession notwithstanding, he would do exactly the same thing — overhyping his plan to become a world-class builder of automobiles — in order to sucker the British government into funding his car company, while privately admitting that his DeLorean sports car would never sell in enough numbers to make the company profitable. Still, because of his high media profile, DeLorean managed to find other investors, such as NBC’s Johnny Carson, to put up and ultimately lose large amounts of money in record short time.

Hype and high-profile don’t always go hand in hand, but it’s convincing when they do hook up.

Besides, America seems to run on hype as much as anything else — at least, when it comes to our perpetual optimism about the future. Given the choice between a gritty, unpleasant story about what’s really going on in the world or business, or happy talk that’s nothing more than sheer speculation without benefit of facts, human nature will take the happy stuff every time. After all, that’s why we spend money on a movie that “critics claim is the movie of the year,” while “unnamed Hollywood insiders” whisper to the media that this film is the sure-fire Oscar winner next year. Only after you’ve been lured into the theater and sit through one of the worst movies you’ve ever seen do you realize that you will never get that two hours of your life back.

Then again, it doesn’t matter: The movie studio still got your money. Apparently those unnamed Hollywood insiders whose whispers lured you into watching the film were working in the studio’s accounting department.

It’s always a toss-up as to who is the absolute best at hype, Hollywood or the world’s automakers. Both industries started around the same time; their long-term success simply meant that other groups have followed their lead.

Hype-fueled Long Cons

Enron was a company hyped to the max, until we all heard the tapes of how they misled power companies to shut down their plants in order to spike rates during the summer heat. And the only reason that scam worked so well was that Enron also led the charge to deregulate electric utilities across the country. Luckily for us, one journalist, Bethany McLean at Fortune, never believed their story; upon further investigation, she found the entire company to be nothing more than a house of cards.

Self-driving cars is something the media seems to be covering every week. The stories are always breathlessly reported: How auto manufacturers and independent companies are spending untold billions of dollars to be the first to market with vehicles that will drive themselves. None ever seem to ask whether the motoring public at large wants this to happen.

Last week, however, John Krafcik — head of Waymo, Google’s self-driving car division, often considered the current leader in self-driving vehicles — said that it will be decades before a true and fully self-driving car comes to market. And even then, it will never be able to operate under all the conditions that humans have to deal with while driving. Sorry, but if self-driving cars cannot function in all of the different conditions that human drivers can, their adoption as the ultimate replacement for all motorized vehicles is unlikely.

Also last week came the story that Volkswagen is going to spend $50 billion to bring massive numbers of electric vehicles to market worldwide. Then claimed they would have a Tesla killer that starts at $23,000. That’s funny, because General Motors already has a vehicle, the Chevy Bolt, that in terms of range competes with the very popular Tesla Model 3. Only it starts at just under $40,000 — which, the automotive media wrote, would be a handicap since the Model 3 was priced at $35,000. But no one yet seems to have written that the Chevrolet Bolt nicely equipped sells for around $40,000 less federal tax credits, while the average price of the Tesla Model 3 sold in the last quarter may have been over $55,000.

But why would VW say it will have a car to battle the Tesla Model 3 for $23,000? That’s never going to happen. Here’s another thing that’s never going to happen: Volkswagen specifically spending $50 billion to bring massive numbers of electric cars to market. How do we know? Because VW makes these sensational announcements about incredible amounts of money it’s about to spend on future products every year. And it’s no different from any auto company spending a fortune to bring new vehicles to market.

Case in point, last week’s story that VW would spend $50 billion to become the world’s leader in electric cars. Yeah? Let’s go back to September 11, 2017, when Volkswagen announced that it would spend an incredible $84 billion to become the world’s leader in electric cars.

No one seemed to remember that, but google works just fine to find those stories.

And that’s no different from December 27, 2012, when Volkswagen announced that it would spend $17.2 billion in their Audi division to better compete with BMW; one year later to the day, December 27, 2013, VW said it was spending $30.3 billion on future Audi products. This is not unlike other automakers who claim to have 30 “new or updated” models coming to market in the next two years. Translation? Five new products and 25 vehicles with new grills.

Fool Me Forever

Last week The Verge ran a column on the runaway success of Volvo’s overpriced subscription plan on its new XC-40, claiming it’s caused a shortage of that product nationally. But that article got its data from Autoblog, which in turn got its data from the Automotive News November 12 interview with Volvo head Anders Gustafsson.

Now, Gustafsson made the claim that in just four months Volvo sold more XC-40 subscriptions than the company had anticipated for the entire year. He also hinted that dealers aren’t happy because they have been cut out of these transactions. Yet no one asked him for hard sales numbers. That’s kind of a sure sign the automotive story being pitched falls into the category of hype.

Nor did the reporter ask a crucial question: When the payments are up to $300 a month more than someone could simply lease the exact same car for, why is this subscription program so successful?

As for dealers’ being upset about being cut out of the action, that’s not true either. Those cars are delivered to the Volvo dealers, who then have to make them ready, go over the vehicle with the customer, and handle all of the paperwork and registration. So no, the dealers are not being cut out of any of the work involved in selling and delivering a Volvo on an overpriced subscription plan, just cut out of the profit. It’s highly doubtful, by the way, that any Volvo dealer in America would ever get that much money over list price for one of their leases.

As to the supposed runaway success of this program and the shortages of this product? Maybe 40 or 50 subscriptions in DFW after almost 9 months, only a handful in Fort Worth; and Autobahn has 15 or so in stock right now for delivery.

It should be noted that during this same period, GM shuttered its Cadillac subscription program, once highly touted as the future of marketing. GM was charging upwards of $1,800 per month and had only 18 Cadillac subscribers in all of North Texas after 23 months. (There were 12 – 13 people waiting who never received vehicles.)

In the Seventies and early Eighties, when we had a separate New Car Dealer Association for Tarrant County, every year before the New Car Show they would hold a breakfast for the area’s salespeople. Almost 40 years ago they hired a futurist to speak to all of us, and his vision for the automotive industry was breathtaking. As he then claimed, the day was coming quickly when salespeople would no longer be needed to sell new cars. Soon vehicles would come unpainted from the factory so customers could choose the color paint they wanted, and a specialized paint booth at the dealership could accommodate their request.

If the dealers association was looking for someone to motivate the area’s new car salespeople before they worked the auto show, they should never have hired this guy. And for the record, 40 years later our futurist didn’t miss one prediction about the auto industry — he missed them all.

As the old saying goes, fool me once, shame on you, fool me twice ... please, because that’s what I really want.

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: edwallace570@gmail.com