King Of The Road

Jan. 21, 2005
Where Detroit's Big Three once dominated, Toyota now reigns, but conservative styling and an increasingly fragmented market could tarnish its crown.

Despite the appeal of Ford Motor Co.'s redesigned Mustang, despite DaimlerChrysler AG's remarkable urban market inroads with the Chrysler 300C and Dodge Magnum, despite the continued standout styling of Nissan Motor Co. Ltd., and despite the product development efforts of vice chairman Robert A. Lutz at General Motors Corp., Japan's Toyota Motor Corp. can rightfully claim to be king of the road.

"Hands down one company wins the prize -- and I think even their competition would agree -- and that's Toyota," states Michael Treacy, chief strategist of GEN3 Partners, an R&D services firm based in Boston and St. Petersburg, Russia. "It's a multitude of things that gives them an advantage." Among them: a short design cycle, manufacturing quality that is "years and years" ahead of the competition, "wonderful" market position from Scion at the bottom of the line to Lexus at the top, and "very happy and very profitable" dealers, he says. Toyota also "has not burned its supplier base to the ground," he emphasizes.

Another endorsement: "The king of the road has to be Toyota right now," says Tom Letizia, president of Letizia Ad Team, a Las Vegas-based advertising agency for 16 auto dealerships in 16 states.

Can Goshn Make A Go Of Being A Double CEO?

On April 1, Nissan Motor Co. Ltd. CEO Carlos Ghosn, an executive of extraordinary brains, drive and vision, becomes also CEO of Renault SA, Nissan's France-based parent company. Can Ghosn, born in Brazil to Lebanese parents, educated in France, and the principal author and legendary implementer of the Nissan Revival Plan, be a successful double CEO?

"On the basis of facts, history and experience, I think I'm in a good position to succeed," Ghosn says in "Shift: Inside Nissan's Historical Revival," published earlier this year by Currency/Doubleday.

But Michael Treacy, chief strategist of GEN3 Partners, an R&D services firm based in Boston and St. Petersburg, Russia, has his doubts. Perhaps Ghosn can if he is a CEO who only manages balances sheets and investor relations. "If that's all he does, then what he's really counting on is having underneath him chief operating officers [and] presidents who are really CEOs," says Treacy. "But can one man actually run both companies? I don't think so."

And another: "I'm a market-oriented economist -- I believe that markets tell us something -- and based on that you would have to say Toyota [is the best in the world] because they are winning in the marketplace," says George Hoffer, a professor at Virginia Commonwealth University in Richmond who's been analyzing the industry for 35 years and drops into car dealerships on Saturdays to see what's selling. "They [Toyota] are the firm on a roll and have basically been so for virtually a generation."

While Toyota clearly stands out from all the rest, a few other automakers get favorable mentions. For example, Letizia gives kudos as well to Nissan and Honda Motor Co. Ltd., two other Japanese automakers, and, maybe to the surprise of some, to South Korea's Hyundai Motor Co. "Hyundai is making big strides. They're starting to compete effectively. . . . The most brilliant thing that Hyundai did, a few years ago, was they offered that 10-year warranty. They put their money where their mouth was," says Letizia.

However, particularly when it comes to matching marketing and production, Letizia isn't applauding two of Detroit's giant carmakers, Ford and GM. "Quite often the factory is out of touch with the marketing people. Too often the factory -- and this goes for some of the import manufacturers as well -- will release a hot new product, spend a fortune [on marketing] and then give their dealers only a couple units to sell," he laments. It stems, he claims, from the just-in-time practice of holding down inventories and business costs. "I understand that way of thinking," he says. "But on the other hand, before you launch a campaign or before you break with a new product, you need to make sure that you have the inventory. Otherwise you're just throwing money away."

Treacy generally is not impressed with GM. "The only [line] that you can clearly say is winning and succeeding today is the one that if you had talked to me five years ago I would have bet my life that they were going to be dead -- and that is Cadillac." It's doing a couple things right, in his opinion. Cadillac is making cars that appeal to people who are less than 65 years old. "What they did with the Escalade in getting it positioned as a sort of urban rap kind of vehicle was simply brilliant," Treacy says. At the same time, Cadillac is working with its dealers through a program called Standards of Excellence that creates incentives not just for selling cars but also for improving the ways its dealers treat customers, he relates.

GM ranks considerably higher in Dan McGinn's estimation. "The clear leader in China is General Motors," says McGinn, CEO of the McGinn Group, an Arlington, Va., consulting firm, and a person who's studied the auto industry for two decades and visits dealerships every week. "For all the criticism they [GM] get for what they are doing wrong in the U.S., they're doing a tremendous amount right in Asia now," he states. "For Asia, this is a company with a global perspective. And they have really sharpened that. They are using design studios in Australia and Europe and the United States and connecting them now. They made a very efficient purchase of [South Korea's] Daewoo and were able to get tremendous manufacturing capability at super low cost."

Although continuing to face "a tremendous challenge" with Jaguar, Ford is positioned for a comeback, McGinn believes. "The new Mustang is an absolute home run for them," he says. "Bill Ford certainly looks like he has a very sharp focus and has laid out a plan and is sticking to it."

Toyota can keep its success rolling another five years, believes VCU's Hoffer. "They have so much goodwill built up," he stresses. But even to Treacy's admiring eyes, Toyota has a couple of vulnerabilities. "They have taken a very safe, if not boring, position on product design. They have been focused on the center of most market segments, and the center of the market isn't looking for flashy," Treacy judges. In contrast, Nissan, which he describes as probably the "other very successful Japanese manufacturer of the last number of years," has made inroads on product design. "They have made inroads by targeting these Generation X, Generation Y [and] Generation Z younger buyers with very narrowly focused product like the Xterra [SUV]." Vulnerability No. 2 for Toyota, Treacy believes, is the continued segmentation of the car market. "While a couple of years ago there was a choice of 260 models in the U.S. market . . . that number is now north of 300. [And] that numbers is going to go north of 500; it's going to go north of 1,000," he predicts.

Indeed, for Detroit-based James Sourges, vice president of the global automotive sector at consultants Capgemini, a major question is how well equipped carmakers are to keep up with the pace of change. He tells the auto companies to remember the consumer and to think of retail and brand image. "Do you want to be the Nordstrom of the world or are you going to be the Kmart with the blue-light specials?" he asks them, rhetorically.

Meanwhile, "the urban market is pretty much determining what's cool, what's hip, what's relevant throughout the country," contends Bobby Jones, director of strategic solutions for AMPdi, a New York-based marketing agency. Think Chrysler 300C, for example. "Any automotive brand that wants to be associated with cool and what's hot and what's relevant to some extent is going to want to develop some relationship with the key people within the space and they are going to want to get the endorsement of the key influencers within the space," he says. The urban market -- which Jones defines as multicultural living in an inner-city, hip-hop kind of lifestyle -- has been around for three decades, he says. But during the past three or four years, its importance has dramatically increased, he relates. "It's not going away, and it's not something you can ignore," Jones stresses. "You have to have it in your marketing mix to be successful."

For marketer Letizia, a major challenge is one of the auto industry's own making: the zero-down, zero-interest financing it offered in the wake of the Sept. 11, 2001, terrorist attacks in the U.S. "It's a great incentive to get people to go out and buy cars. The problem is that the car buyers are getting into these cars and they have zero equity and they are not going to see any equity for nearly the full term of that purchase," he states. "Where they thought they had a down payment for a new vehicle purchase [in their existing car], they're actually in the hole," he emphasizes. "That's a problem I think is going to come back and haunt GM and Ford."

Finally, VCU's Hoffer looks to China. "I see what's happened in the toy train industry. I see what's happening in the appliance industry, where the Chinese take their dollars and buy American firms or buy worldwide firms. I see the Chinese breaking into the U.S. market, buying a fading or a troubled brand, but one that is resurrectable. . . . And once they buy, I can see some pruning."

About the Author

John McClenahen | Former Senior Editor, IndustryWeek

 John S. McClenahen, is an occasional essayist on the Web site of IndustryWeek, the executive management publication from which he retired in 2006. He began his journalism career as a broadcast journalist at Westinghouse Broadcasting’s KYW in Cleveland, Ohio. In May 1967, he joined Penton Media Inc. in Cleveland and in September 1967 was transferred to Washington, DC, the base from which for nearly 40 years he wrote primarily about national and international economics and politics, and corporate social responsibility.
      McClenahen, a native of Ohio now residing in Maryland, is an award-winning writer and photographer. He is the author of three books of poetry, most recently An Unexpected Poet (2013), and several books of photographs, including Black, White, and Shades of Grey (2014). He also is the author of a children’s book, Henry at His Beach (2014).
      His photograph “Provincetown: Fog Rising 2004” was selected for the Smithsonian Institution’s 2011 juried exhibition Artists at Work and displayed in the S. Dillon Ripley Center at the Smithsonian Institution in Washington, D.C., from June until October 2011. Five of his photographs are in the collection of St. Lawrence University and displayed on campus in Canton, New York.
      John McClenahen’s essay “Incorporating America: Whitman in Context” was designated one of the five best works published in The Journal of Graduate Liberal Studies during the twelve-year editorship of R. Barry Leavis of Rollins College. John McClenahen’s several journalism prizes include the coveted Jesse H. Neal Award. He also is the author of the commemorative poem “Upon 50 Years,” celebrating the fiftieth anniversary of the founding of Wolfson College Cambridge, and appearing in “The Wolfson Review.”
      John McClenahen received a B.A. (English with a minor in government) from St. Lawrence University, an M.A., (English) from Western Reserve University, and a Master of Arts in Liberal Studies from Georgetown University, where he also pursued doctoral studies. At St. Lawrence University, he was elected to academic honor societies in English and government and to Omicron Delta Kappa, the University’s highest undergraduate honor. John McClenahen was a participant in the 32nd Annual Wharton Seminars for Journalists at the Wharton School at the University of Pennsylvania in Philadelphia. During the Easter Term of the 1986 academic year, John McClenahen was the first American to hold a prestigious Press Fellowship at Wolfson College, Cambridge, in the United Kingdom.
      John McClenahen has served on the Editorial Board of Confluence: The Journal of Graduate Liberal Studies and was co-founder and first editor of Liberal Studies at Georgetown. He has been a volunteer researcher on the William Steinway Diary Project at the Smithsonian Institution, Washington, D.C., and has been an assistant professorial lecturer at The George Washington University in Washington, D.C.


Sponsored Recommendations

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!