THE DAY AFTER TOMORROW.

By Peter M. DeLorenzo

Detroit. When this COVID-19 crisis grinds to its inevitable and excruciating conclusion, things are going to be much different around here. Despite this country’s (sort of) best effort to craft an economic stimulus package that will make a difference in people’s lives, the fact remains that countless small to medium businesses will be lost for good, and the ensuing recession will be pronounced and severe. The restaurant industry in particular will be decimated, as well as thousands of local mom-and-pop stores across this nation. It will not be pretty.

There is no doubt that the automobile business is one of the industries that will be hardest hit as well. The manufacturers have been forced to start conserving cash to the extreme as the lockdown takes on new urgency, which means new product development will be slowed and hard decisions will have to be made as to what gets attention and what is left to languish in limbo. Auto dealers are going to be rocked, as their entire raison d'etre exists in 30-day increments, and it’s fair to say that some won’t survive this onslaught either. 

Getting this business going again will take a lot more than multi-month payment waivers, "0 percent" financing and lengthy consumer loans. When people have had their finances destroyed, buying or leasing a car will be pretty far down the list of priorities. This is going to put the fundamental question of affordability front and center in this business. It’s a subject I’ve written about often over the last couple of years, but when we start to come out of this crisis, I strongly believe it will be the overriding issue for most consumers.

Cars and trucks were simply getting too expensive before this pandemic, and from now on that fact will be even more pronounced. Yes, the new driver assistance and heightened safety packages that people like are costly, but generally the pricing of vehicles seems to have gotten out of control. And this crisis will put the spotlight on this issue when things start to ease up for our daily living.

What can the manufacturers do? The aforementioned incentives and financing deals will be obligatory, but the manufacturers need to take a hard look at their product programs and identify vehicles in segments that can be re-contented and re-packaged now before the assembly lines get rolling again. 

The pickup truck segment would be an obvious place to start. The manufacturers have become very adroit at coming up with high-value packages as a matter of course. These special editions are usually targeted to specific regions, but when this industry gets ready to roll after the lockdowns fade away, I expect to see the smart manufacturers who took the opportunity to do their homework in this enforced lull emerge with special packages that have enough desirable content with corresponding special pricing to lure buyers back into the market. 

For instance, you often hear consumers fondly recall the compact Japanese pickup trucks from back in the day, and it’s no wonder. They were fairly basic, simple, offered good fuel economy and delivered excellent value. And no, we can’t turn back the clock, but I could certainly see a specially equipped and priced mid-sized pickup today that would at least approach those values from the past. I could see, for instance, a special Chevrolet Colorado – not stripped but decently equipped – slotted at the entry level for that nameplate. The same goes for the current full-size pickups as well. Ford, GM and Ram have all demonstrated an uncanny ability to come up with value editions, but this current situation demands that they come up with something truly unexpected when this business gets going again.

This approach can be applied to the Crossover/SUV segments too. It’s not too hard to see what this formula should look like: high-value content + strongly reduced pricing = exactly what consumers will be looking for. 

It’s really hard to see our way out of this crisis right now, because the constant thrum of very bad news is almost too much to endure. But the Day After Tomorrow will eventually arrive and as it pertains to the automobile business,

I believe the manufacturers who don’t address this concept of high-value/low pricing now - while they have the time to figure it out - will be left at the starting gate when we return to a sense of normalcy, whatever that looks like.

And that’s the High-Octane Truth for this week.