Editor's Page

Crisis looms behind auto boom

No matter how bad things are in your business on a given day, there's always some small consolation in the fact that it could be worse. You could, for example, be in the automobile business. But, you say, what about the booming U.S. economy? What about record levels of (paper) stock wealth being turned into SUVs and sports cars by baby boomers with midlife crises? All good, short-term news -- true. But make no mistake: The automotive business is in for a shake-up the likes of which it hasn't seen since the 1920s and 1930s. Never mind its enormous capital costs or global overcapacity problems. And never mind a union workforce devoted more to preserving jobs than to making sure it's prepared to compete in the digital global economy. This is an industry in desperate need of restructuring -- and without much time to do it. Think about it. Automakers advertise in mass media to lure a few customers into dealers (distributors) it does not own. Of the customers who enter a dealership, only 10% to 20% actually buy a car. And for those who do buy, a survey reported, only one consumer experience rated worse: an IRS audit. Even more astounding, automakers allow their customers to pay dearly for the privilege of being tortured with incompetence and indifference during the second largest (after their houses) purchases of their lives. Estimates of distribution costs for automobiles range from $2,500 to $4,000 per vehicle -- a figure that could be cut by as much as 20% or even 30% with a rationalized distribution system. Yet automakers have resisted change, unwilling to risk upsetting their dealers. Until the Internet. As Senior Technology Editor John Teresko explains in this issue's cover story, "Remaking The Automakers", more than 500 upstart car e-tailers such as autobytel.com, E*Trade, eBay, priceline.com, and Microsoft's CarPoint are leading a consumer revolt against the industry's outdated retail practices and dealers. In the process, these baby dot.coms are forcing General Motors and other automakers to reinvent the way they connect with customers. The perverse thing about this revolution, however, is that because GM and other automakers want to preserve what they can of their antiquated dealer systems (for now), they're being driven to be far more creative than their new competitors. Where most e-commerce companies focus myopically on the seller-buyer transaction, for instance, GM plans to use its e-GM capability to connect with customers throughout the entire life cycle of a car -- from product design to after-sale service and monitoring. The stakes are high: If e-GM works, for example, GM could regain a reputation for innovation in management and marketing. If it doesn't -- well, there's always a small consolation left, even for an automaker. It could, for example, be a dealer. Send e-mail messages to John Brandt at [email protected]

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