Of course, one has to accept that two years back, Bill Ford had divulged to the media that Ford would be necessarily moving towards more fuel efficient cars. That should have done it, right? Well, there was just a slight little problem. Despite his public statement, Bill never moved towards ‘fuel efficient’ cars! [“The market was pulling us in a different direction,” Bill reveals in BusinessWeek this August]. Dangerously, neither had GM! And we’ve not even started discussing the travails of the down and almost out Chrysler yet, which is perhaps simply looking around for a suitable buyer! The Detroit three, unfortunately, focused horse-headedly on selling SUVs and tough trucks, and investing more and more into R&D [close to $12 billion annually] to recreate products that were doomed from the start! That’s how tough it takes some billion dollar loss makers to understand no-brainer issues.
The no-brainer auto issue #2
I caught up with Christian Breitsprecher, equity analyst at one of Germany’s largest investment banks, Sal Oppenheim, and he commented, “Obviously, the auto industry did not foresee the trends... that one day the price per barrel would be so high. Companies, which do not invest in alternate fuel will go down and hybrids is just an element of the entire investment.”
That brought me to the no-brainer issue number 2, hybrids! To say that it’s the most over-hyped concept in the industry today not worth even the media space it occupies, is to speak the truth. The situation today is such that after testing out, one should say successfully, the concept of fuel efficient cars, car manufacturers today are assuming presumptuously that the next logical step in this hugely competitive world is the hybrid (for the rare uninitiated, a car that runs on a combination of petroleum and another source of energy).
And more so companies that are leading the race, like Toyota, Honda etc. Dramatically, the fact is that even with hugely profitable companies like Toyota and Honda, who believe that with hybrids they have the instant solution for the future, the concept could be a thrashing in disguise. The first structural defect afflicting hybrids is the market share. The hybrid is, in simple terms, before its time, and cannot account for significant market share and usage for the next ten years globally. Illogical you said? Look at the figures even in the world’s top auto market (or is it second already?). In the US, despite being ‘in the news’ for the past decade, only 347,102 hybrids were sold in 2007 (see detailed story later on, ‘Where, Mrs. Robinson, lies the problem’). That means that even with Toyota monopolising a 70% share of the market, and after all the billion dollar global marketing attempted by various auto corporations, hybrids accounted for only a miniscule 2.15% of the total new vehicle sales in the US, and puniest percentages in other global markets.
The second structural defect afflicting hybrids is their pricing. It could well turn out that unless auto companies ensure that the pricing levels of offered hybrids are in tune with mass market expectations – especially in markets like India and China, expected to be the world’s top two in the next five to ten years – they might well start failing. Hybrids are simply not cost effective, and will not be in the next seven to ten years, if at all then. A hybrid, to be rampantly successful, has to be priced in such a range that enables the consumer to perceive its ‘long term’ cost effectiveness over the ‘short term’, thus engaging his buying intent. Confusing? For better clarity, read what Deputy Editor Virat Bahri writes later on in the cover section: “Doubts are often raised about how cost effective hybrids really turn out to be. NuWire Investor’s Cali Zimmerman compared the [price of the] Toyota Camry hybrid with the normal version, and statistically proved that the cost difference cannot be recovered before 13.8 years!!! Even the first hybrid to be introduced in, say, a poor country like India – the Honda Civic – costs a huge Rs.18-22 lakhs.” How does one expect consumers in a poverty-ridden country like India (with per capita GDP just around $1000) to buy such a costly car? Isn’t it then quite a no-brainer issue to say that a hybrid, by its very definition, loses its USP once it is priced higher than even normal cars? Amusingly, not when you look at it from the perspective of billion dollar corporations who refuse to wink when drunk.
The no-brainer auto issue #2
I caught up with Christian Breitsprecher, equity analyst at one of Germany’s largest investment banks, Sal Oppenheim, and he commented, “Obviously, the auto industry did not foresee the trends... that one day the price per barrel would be so high. Companies, which do not invest in alternate fuel will go down and hybrids is just an element of the entire investment.”
That brought me to the no-brainer issue number 2, hybrids! To say that it’s the most over-hyped concept in the industry today not worth even the media space it occupies, is to speak the truth. The situation today is such that after testing out, one should say successfully, the concept of fuel efficient cars, car manufacturers today are assuming presumptuously that the next logical step in this hugely competitive world is the hybrid (for the rare uninitiated, a car that runs on a combination of petroleum and another source of energy).
And more so companies that are leading the race, like Toyota, Honda etc. Dramatically, the fact is that even with hugely profitable companies like Toyota and Honda, who believe that with hybrids they have the instant solution for the future, the concept could be a thrashing in disguise. The first structural defect afflicting hybrids is the market share. The hybrid is, in simple terms, before its time, and cannot account for significant market share and usage for the next ten years globally. Illogical you said? Look at the figures even in the world’s top auto market (or is it second already?). In the US, despite being ‘in the news’ for the past decade, only 347,102 hybrids were sold in 2007 (see detailed story later on, ‘Where, Mrs. Robinson, lies the problem’). That means that even with Toyota monopolising a 70% share of the market, and after all the billion dollar global marketing attempted by various auto corporations, hybrids accounted for only a miniscule 2.15% of the total new vehicle sales in the US, and puniest percentages in other global markets.
The second structural defect afflicting hybrids is their pricing. It could well turn out that unless auto companies ensure that the pricing levels of offered hybrids are in tune with mass market expectations – especially in markets like India and China, expected to be the world’s top two in the next five to ten years – they might well start failing. Hybrids are simply not cost effective, and will not be in the next seven to ten years, if at all then. A hybrid, to be rampantly successful, has to be priced in such a range that enables the consumer to perceive its ‘long term’ cost effectiveness over the ‘short term’, thus engaging his buying intent. Confusing? For better clarity, read what Deputy Editor Virat Bahri writes later on in the cover section: “Doubts are often raised about how cost effective hybrids really turn out to be. NuWire Investor’s Cali Zimmerman compared the [price of the] Toyota Camry hybrid with the normal version, and statistically proved that the cost difference cannot be recovered before 13.8 years!!! Even the first hybrid to be introduced in, say, a poor country like India – the Honda Civic – costs a huge Rs.18-22 lakhs.” How does one expect consumers in a poverty-ridden country like India (with per capita GDP just around $1000) to buy such a costly car? Isn’t it then quite a no-brainer issue to say that a hybrid, by its very definition, loses its USP once it is priced higher than even normal cars? Amusingly, not when you look at it from the perspective of billion dollar corporations who refuse to wink when drunk.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri's Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
IIPM : The B-School with a Human FaceProf. Arindam Chaudhuri's Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
