On-the-Point

The Future Ain't What It's Cracked Up to Be

April 6, 2017

Photo courtesy Universal Pictures
Photo courtesy Universal Pictures

Excuse the bad English, but sometimes it’s just fun to say the word “ain’t.” It takes me back to my redneck roots, before I became the sophisticated, genteel socialite you know and love today.

In researching this article, I read dozens of blogs and news items talking about the future of our industry. The overwhelming assorted collection of speakers, writers, reporters, and industry hacks are solemnly predicting cataclysmic changes that will soon shake the foundations of our industry as we know it. Your paradigms will come crashing down around your ears, driven by the Millennial Rebellion, and armed with handheld devices.

Well, when it comes to future-casting in the car business, I think you’ll find I have the most impressive track record for accuracy — calling it exactly as it turned out in reality — more than just about any of the other forecasters, futurists, or industry publication editors. In other words, my stuff really happened.

Tesla has hung its hat on a peerless customer service experience, but reliability issues continue to dog their products. Photo courtesy Norwegian Electric Vehicle Association
Tesla has hung its hat on a peerless customer service experience, but reliability issues continue to dog their products. Photo courtesy Norwegian Electric Vehicle Association

The Bloom Is Off the Tesla Rose

Let’s talk about the future for a minute. Did you ever see one of those 1950s black-and-white sci-fi and horror films that portrayed the 21st century? It is comical where they thought we would be, the homes we would be living in, and the airplane cars we’d all be flying around in. Even the movie “2001: A Space Odyssey,” which was released in 1968, had us flying to other planets and vacationing on the moon.

According to storytellers in the 1950s and ’60s, the year 2017 was going to be way, way, way more advanced than it actually turned out to be, and the technology and lifestyle they predicted turned out to be dramatically different. Even more ridiculous was Marty McFly’s journey to the year 2015 in the second installment of the “Back to the Future” trilogy. In 1989, we were all convinced we’d be riding on hoverboards, zipping around in flying cars, and wearing self-drying clothes and self-tying shoes by now.

We do have electric cars, and Elon Musk and his Tesla brand are often touted as proof we are, in fact, living in the future. The industry was quick to proclaim that Tesla also represented the new benchmark in customer service and quality. His vision of factory direct stores in shopping malls was supposed to usher in a new age of consumer-friendly automotive marketing.

This guy and his car were the nails in our coffins. Everything was roses until his cars started killing people. Kind of embarrassing when the autopilot technology failed to recognize an 18-wheeler and drove right through it, killing the driver. Oops! And do you recall the time those Teslas started catching fire and burning up spontaneously? That ain’t good.

Oh, Consumer Reports once lavished praise on the Tesla Model S electric car as the paragon example and the best performing car they had ever tested. Now they have downgraded Tesla’s quality and reliability to “Do Not Recommend,” which is their worst rating. Consumer Reports cited the reason for that awful score was drivetrain problems, power equipment, center console computer screen, body, and sunroof — squeaks, rattles and leaks. Let me check here: Yup, that ain’t good.

With Tesla’s problems becoming increasingly evident beginning in 2015 and throughout 2016, Tesla owners do remain loyal to the brand. Customer service is exceptional, although costly, for the company. And despite taking hits in quality and reliability, Tesla remains CR’s highest-ranking U.S. brand.

Owners reported defects, included leaking cooling pumps for the battery pack, dead windshield wipers, recurring alignment issues, and misaligned latches for the front trunk lid and the rear liftgate. According to recent reports in Bloomberg and other outlets, Tesla is experiencing high turnover as top executives are bailing out and leaving the company. Under pressure to bring the long-anticipated Tesla Model 3 to launch, it seems as if key executives are abandoning ship at the most crucial time. As of this writing, more than two dozen members of Tesla’s dream team have bailed.

As if that isn’t enough stress on the company, Elon Musk is fighting off an effort by employees to unionize. He’s offered ridiculous (by my standards) incentives to keep the employees with the company and happy, and to ward off the union movement. Employees are citing oppressively long hours, stacking too many duties on individuals, and excessive pressure to rush to mass production to bring out the Model 3. The call for unionization came when employees complained of 60- to 70-hour work weeks, safety-related issues, and mandatory overtime.

Attracting and retaining skilled technology, executive and production employees is a challenge they readily admit. Currently, Tesla has recruiting bulletins out to hire 2,000 skilled and executive employees. At the same time, Tesla is suing at least one former key executive, Sterling Anderson, who defected to Google’s Autonomous Cars division. Anderson was the head of Tesla’s autopilot program.

We are starting to see Wall Street’s confidence in the brand retreating as six major analysts, including Goldman Sachs, have downgraded the company’s stock from neutral to a strong sell. Down from its high of $280.98 on February 14th, the per share price fell to $246.23 following the downgrade. Some analysts have not only downgraded Tesla stock to sell, they have put a six-month guidance target on it of $185. Damn!

Ambitious plans require capitalization, and it appears Tesla is going to have to issue stock this year to raise an additional $1.7 billion. I’m wondering if the market will be as kind as the initial offering. Some analysts do see it as a buy with the new offering pending.

So much for the model business of the future. Currently everything seems to suck in Camelot, but hey, they do have an exceptional customer experience.

General Motors sold its Eurocentric Opel and Vauxhall brands to PSA Group, the parent company of the Peugeot and Citroen brands. Photo by Metilsteiner
General Motors sold its Eurocentric Opel and Vauxhall brands to PSA Group, the parent company of the Peugeot and Citroen brands. Photo by Metilsteiner

It’s About Time

I’ve often said that the reason my industry observations and future forecasts in the retail automobile business have been, and continue to be, so accurate is not because I am brilliant. Rather, it is because other people have been so stupid.

Yesterday’s headlines in every industry news source announced that General Motors has sold their European operations, Opel and Vauxhall, to PSA Group.

Excuse me, I have written about that dozens of times over the last 30 years. I’ve mentioned it in speeches, articles, blogs and personal conversations with top General Motors’ executives. Opel is, and always has been, and probably always will be, a low-end OEM. At least that’s my view of the products and the company. Thankfully, it is now owned by PSA, which you might recognize as the, home of the Peugeot brand. (Birds of a feather crap together.)

GM acquired majority ownership of Opel in 1929, took a break when World War II broke out in 1939, then resumed ownership afterward. They were originally a sewing machine company. They subsequently built bicycles. It appears they then merged the two, producing bicycles run by sewing machine motors, disguised as cars.

During the initial year of the bankruptcy, General Motors had a chance to unload Opel/Vauxhall in 2009 to a company backed by Russia’s Sberbank. I never figured out exactly which braindead fool passed on that deal.

Through the years, General Motors executives have tried and failed repeatedly to make this pig profitable. They ruined the brand equity of many General Motors nameplates, such as the Chevy Malibu, by rebadging Opel products and selling them in the states. Through the years, they’ve tried to sell Opels disguised as Buicks, Saturns, Chevrolets and even Cadillacs. Invariably, every time they tried to sell Opel rebadged product to U.S. buyers, they failed and discontinued the models or went back to building the cars in U.S. plants to U.S. standards.

The most famous debacle was when they introduced the Cadillac Catera in 1997, advertised as “The Caddy That Zigs.” Complete with fanfare comparing it to BMW and commercials featuring supermodel Cindy Crawford, the Catera initially earned high praise from Car and Driver, which would later include the Catera in an article titled “Dishonorable Mention: The 10 Most Embarrassing Award Winners in Automotive History.”

In the second article, the editors apologized and ranked their previous praise of the Catera as the No. 4 biggest mistake they ever made recommending an automobile, right behind the Chevy Vega. Reliability, poor quality, and a surprisingly high sticker price were some of the reasons. The Catera is considered to have been the final nail in Cadillac’s coffin as a world-class, luxury upscale competitor. Thanks, Opel.

In reality, General Motors is paying PSA a premium to take Opel/Vauxhall off their hands. Although the official, face-saving press says PSA will pay $2.3 billion for GM’s European operations, the fine print says General Motors will pay PSA $3.2 billion to cover future employee pensions, and GM will continue to manage an additional $9.8 billion to cover existing retired employee pensions.

Okay, so General Motors has lost money in all of their European operations since 1999. The worst part of the equation was dealing with the European labor union mentality, with 38,000 employees. Opel/Vauxhall has been a major drag on General Motors’ profits and brand for a long time. Not that I’d be one to say “I told you so.”

My thinking is that General Motors will reinvest time, engineering and capital in expanding and growing Chinese operations. The danger is poor quality and inferior materials. GM has already been burned by Buick product manufactured in China with rusting valves. Maybe they’ll take a cue from President Trump and focus on building American cars.

Ziegler remains in awe of FCA chief Sergio Marchionne, who appears to be shopping one or more of his brands to buyers worldwide. Photo courtesy Fiat Chrysler Automobiles
Ziegler remains in awe of FCA chief Sergio Marchionne, who appears to be shopping one or more of his brands to buyers worldwide. Photo courtesy Fiat Chrysler Automobiles

Love This Guy

Sergio Marchionne is at it again. No sooner did GM announce they were jettisoning Opel and Vauxhall then Sergio started holding press conferences and interviews at the Geneva Auto Show.

It seems like the GM/PSA deal may have shifted the dynamics of the European car market. For several nonconsecutive years, Volkswagen has had the No. 1 selling car in Europe and the No. 1 selling car worldwide. With Peugeot and other nameplates adding two new brands to the lineup, it seems PSA is poised to become the largest car company in Europe — owned by the French, no less.

Let’s think like Sergio for a moment here. He’s been running all over the automotive world trying to sell (merge) FCA with any takers. He’s already attempted a hostile takeover of GM that sort of failed on the drawing boards, and now another door is opening. It didn’t take long for Marchionne to put together a plan to get Volkswagen to merge or buy FCA, and his ace in the hole is the economies of scale that the severely wounded Volkswagen might find attractive.

Of course, in typical Sergio fashion, he didn’t close the door on GM. He made statements in interviews in the last few days saying that he knocked on the door and GM didn’t answer, but he insinuated the door is not completely closed either. My interpretation is that Sergio is wheeling and dealing, and he is going to find a buyer or merger partner for FCA.

This international soap opera continues to play out as just one day after Marchionne’s statements about a possible VW partnership or merger. We hear that Volkswagen fired back, saying they were not interested in even discussing the possibility. Also at the Geneva show, Volkswagen Group’s CEO, Matthias Mueller, told Reuters: “We are not ready for talks about anything. I haven’t seen Marchionne for months. We have other problems.”

I’ve always suspected that Sergio renamed Dodge trucks as the Ram brand so he could break off the crown jewels, which are Jeep and Ram, and sell them separately without the buyer having to take Fiat, Dodge and Chrysler.

Remember, Sergio announced he’s retiring as FCA’s CEO in 2019. Maybe I’m wrong, but I suspect he’ll unload the entire ball of wax before he rides off into the Italian sunset. As if Dodge-Chrysler-Jeep hasn’t had enough changes in ownership over the last few decades.

I am doing my best to think like Sergio here. As I first wrote nearly a decade ago, I am torn between believing Sergio is a certifiable lunatic or genius. Maybe he’s a certifiable lunatic genius. Who knows?

Consider this scenario. Sergio knows — as a matter of fact, the whole world knows — that he would have no problem selling the entire FCA company and all of its holdings, assets and debt to the Chinese. Everyone knows the Chinese would do whatever it took to get a manufacturing facility in the U.S. market. An established brand like FCA would be a bonus.

What if Sergio played the China card? I promise you that VW and GM would be stepping all over themselves to stop that deal at any cost, and maybe even Toyota would get in the game. Crackpot or not, I predict Sergio will win this elaborate chess game he’s playing because of that one ace up his sleeve. He hasn’t played it yet because he’s working the marked targets in this complex con job.

Never forget how he put former GM chairman Rick Wagoner together like he was a two-piece puzzle a few years back when he made GM pay $2 billion for air. Wagoner gave up $2 billion just to get out of a deal with Marchionne. Crackpot or not, his old grandfatherly demeanor masks a master schemer. Love this guy.

Meanwhile, Subaru and its parent company, Fuji Heavy Industries, is the latest foreign OEM to announce new plants in the United States. Although nobody wants to admit it, the truth is that more companies are electing to build their manufacturing plants in the U.S. market in light of President Trump’s threats of a border tax. According to Bloomberg, Subaru CEO Yasuyuki Yoshinaga announced that Subaru’s latest plant will be based in the Southern U.S.

The “America First” theme is resonating with foreign manufacturers, as well as U.S.-based companies, within and outside the automotive industry. Amazingly enough, no one is screaming “foul” or “unfair” too loudly or believably. Let’s face it, most countries we do business with have severely lopsided taxes, penalties, and trade restrictions. It’s refreshing to see some leveling of the playing field.

The Big 7-0

I just celebrated my 70th birthday, and for many years now, I have always said I will never retire. My plan is to die on stage in front of a cheering audience. This is despite a back issue that has sidelined me a couple times in recent months. The technical name for my disorder is “old weightlifter disc degeneration.” I told my surgeon I used to bench 450 pounds. He said, “Why?”

Regularly spaced minor surgeries, quarterly epidurals and the occasional handful of painkillers have kept me on my feet, but at some point, I’ll be facing a major surgery. So, with the helpful guidance of my wife, Debbie, I have reluctantly agreed to stop performing in-dealership training and consulting.

The decision marks the end of an era in which I visited thousands of dealerships in 49 states, trained more than 100,000 dealers and dealership employees, and racked up 5 million miles with Delta.

But I am not retiring. I am still going to perform seminars for automotive sales managers and F&I managers, and I will remain active on the events circuit, delivering training seminars and keynote speeches; and of course I will continue writing for this magazine, F&I and Showroom, and my various blogs and private social media groups.

So keep those emails and phone calls coming, and look for the Alpha Dawg online. The future ain’t what it’s cracked up to be, but it’s the only one we’ve got, and we’ve got to get it right.

Comments

  1. 1. Tom Hawkins [ April 12, 2017 @ 12:27PM ]

    Great article, Jim. I am going to post the Tesla part. Well done!

  2. 2. Chad Keogh [ July 24, 2017 @ 12:28PM ]

    Your predictions come true due to being based on fact and observation, not wishful thinking like some. I am hopeful that King Elon will get Camelot back on track in the very near future.

  3. 3. Chad [ July 25, 2017 @ 04:32AM ]

    I am curious, which lonely state is the only one you have not done training in?

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