7/1/2008 | 2 MINUTE READ

Insider: Prevent Overreaction

Declining sales and high fuel prices are causing auto executives to stock up on Pepcid, but those stomach cramps could be worse if rash decisions are made.
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Overreaction can be devastating.


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Overreaction can be devastating. Just when it appears the dark clouds have formed and a deluge is upon us, we respond with overzealousness to diminish the impending impact, only to realize that our preventative actions have caused some unexpected results more destructive than what we were facing in the first place. As the global auto industry goes through what is a real fundamental change in the way it does business, its leaders must keep cool heads to assure that they don't overact to what some might declare temporary market pressures. The result could be permanent losses in market share and profitability, or even worse.

What sparked this thought was a recent article I read in which Volkswagen Chairman Ferdinand Piech expressed interest in having VW buy a motorcycle manufacturer (Ducati, in his specific example) to give VW an opening into 2-wheel transportation. This, he claimed, would help the automaker diversify its lineup, capture a piece of a growing sector of the transportation market, and provide a fuel-efficient alternative to the automobile. Of course, it doesn't hurt that Piech's garage is graced with a couple of Duc's, though acquiring a motorcycle maker would make VW more like Honda and less like the claimed target of his interest, Toyota.

As a fellow bike rider, I think Piech may be onto something—motorcycles and scooters are growing in popularity (sales in the U.S. are up nearly 20%) and some bikes achieve more than 60 mpg—but he and the rest of the auto industry leadership should tread lightly and look at history as a guide when it comes to quick expansions into new territories to see what happens when a company responds to market trends without thinking about long-term consequences: Ford paid $2.7-billion for Land Rover in 2000 and unloaded it to India's Tata Motors earlier this year at a fraction of the cost. GM bought marketing rights to the HUMMER brand in 1999 from AM General and is now considering closing the brand as SUV sales tank. What went wrong? Both automakers bet that the SUV craze wouldn't end and forgot that all fads are just that. Something always comes along that brings them to an end.

Don't get me wrong, I honestly believe that we are unlikely to see $1.50 per gallon gasoline in the next decade, nor are we likely to see China or India put the brakes on their desire for oil. But the simple fact of the matter is that we can ill afford to have the industry begin the process of buying assets that will cause further disruption to building and engineering cars and trucks with the best fuel economy, quality and value, bar none.

It would be entertaining to see VW buy Ducati or MV Agusta, just as it would be fascinating to see Cadillac express interest in Orange County Choppers, or Ford go on the prowl for Harley-Davidson. These combinations would be comical and most of them far-fetched, but some said the same when discussions developed over Daimler buying Chrysler and Ford acquiring Aston Martin. What needs to happen now is focus, not distraction. This industry is at its best when it focuses on its core responsibilities. Motorcycles, flying cars and ATVs are not core to most vehicle manufacturers and would more than likely cause a fatal distraction to already overworked engineers and designers.