Automotive

What are the short- and long-term implications of self-driving automobiles?

Phillip Nones Business, Economics, Social Commentary , , , , , , , , , , ,

McKinsey’s take:  In a world where people don’t take charge of the wheel themselves … we’ll all be better off.

The Google Driverless Car
The Google Driverless Car

From Google’s fleet of driverless cars to the Mercedes-Benz Robo-Car concept, self-driving automobiles are stepping off the pages of science fiction and into real life.

But how many of us have really stopped to think about how the adoption of self-driving vehicles will change everyday life as we know it?

Consulting firm McKinsey & Co. has done so, and a recently released report predicts some pretty major changes – most of them very fine, indeed.  Here’s a sampling:

  • The number of car crashes will plummet.
  • “Drivers” will become “riders,” with more time for working, leisure and interaction with others.
  • “Dead time” in commuting will decrease, and productivity will increase as a result.
  • The ubiquity of the multi-car household will change.

And it’s not just McKinsey that is looking at self-driving cars with such optimism.

Even the normally dour and scolding National Highway Traffic Safety Administration predicts that consumer adoption of self-driving vehicles will usher in “completely new possibilities for improving highway safety, increasing environmental benefits, expanding mobility, and creating new economic opportunities for jobs and investment.”

But self-driving cars won’t overtake conventional automobiles in one fell swoop.  The McKinsey report outlines a timeline for adoption of self-driving features — and it’s pretty drawn-out.

Within the next three to five years, McKinsey anticipates that cars will self-handle highway cruising and traffic jams.

The more difficult challenges of driving in urban areas and dealing with variables like pedestrians, cyclists and so forth will be tackled over the coming 25 years.

Thus, the impact of “autonomous” technology will be limited until about 2020.  McKinsey figures that the technology will experience growing pains in the years 2020-2035 as driverless cars go more mainstream.

During this period, there will be numerous issues that will need to be resolved, with clear hub-and-spoke implications:

  • The development of comprehensive rules regarding how self-driving cars are developed, tested, approved and licensed (on an international basis)
  •  Changes in insurance practices – migrating from individual coverage to automaker policies that cover technical failures
  •  The growth of remote diagnostics and over-the-air updates
  •  The decline in importance of independent automotive repair shops
  •  The reduced need for taxi drivers and long-haul carrier jobs

The McKinsey report takes us beyond the year 2040, too, which is the point when McKinsey predicts that autonomous cars will become the primary means of transport in the United States.

The implications of this are guesstimates more than anything else, but McKinsey speculates on the following long-term effects:

Mercedes-Benz "car of the future": Seats facing every which-way.
Mercedes-Benz “car of the future”: Seats facing every which-way.
  • Car designs will change dramatically – no more need for mirrors and pedals … and car seats will face any direction.
  • Space savings on streets, roadways and parking lots from more efficient vehicle use.
  •  Fewer cars will be needed compared to today, with one autonomous car doing the job of two conventional vehicles in the typical household. The vehicles will be more expensive but fewer of them will be needed, for net savings for consumers.

As for the economic impact, the figures are difficult to quantify as some sectors of the economy will be up and others down.  But with a projected 90% drop in car crashes, the savings in auto repair and healthcare bills alone are project to be around $180 billion.

If we accept the McKinsey report’s bottom-line findings, it seems the “brave new world” of self-driving cars can’t come soon enough.  But what are your thoughts?  Are there negative implications  or “unintended consequences” that will be part of the revolution?  Please share your perspectives here.

The hybrid car sizzle is fast becoming the hybrid car fizzle.

Phillip Nones Branding, Business, Economics, Government, Manufacturing, Social Commentary , , , , , , , ,

Well, that sure didn’t last long.

Hybrid autos: Already riding off into the sunset?
Hybrid autos: Already riding off into the sunset?

News reports this week are stating that the market share of hybrid vehicles is now on the decline.

That is correct:  As of 1st Quarter 2014, hybrids only make up around 3% of the total car and light truck market in America.

Rather than an increase, that represents a pretty significant drop from nearly a 3.5% share of market just one year ago.

Here are the trend stats in graphic detail, courtesy of automotive statistics and intelligence firm IHS/Polk:

Hybrid Vehicle Stat ChartActually, the number of new hybrid car models being offered is still on the increase — now there are 47 different choices compared to around 25 in 2009, with Toyota’s five Prius models collected representing ~40% of the total hybrid market.  (The Prius share is down from ~55% in 2011, by the way.)

New model offerings or not … it’s pretty clear that the public’s interest in hybrid vehicles isn’t going up commensurately.  And the litany of reasons is all-too-familiar:

  • High car sticker price
  • Costly and complex batteries
  • Improved gas mileage and energy efficiency of conventional vehicles

Looking at the year-over-year trends, I think it’s doubtful that hybrid vehicles will ever achieve the high hopes the EPA and other federal officials have had for their adoption.

How embarrassing for them.

Instead, it seems more likely that the market will gravitate from the internal combustion engine straight to all-electric vehicles.  None of this “automotive hermaphrodite” stuff in between.

The more interesting question is this:  When will that shift occur?

To that one … not many people seem to have a definitive answer.

The VW Van Rides into History

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T1 Type 2 VW Van
“T1 Type 2” VW van, manufactured by Volkswagen from 1950 to 1967.

Last week, a front-page article in The Wall Street Journal profiled the continuing attraction of ca. 1970s vans, decked out with all sorts of custom accessories and wild paint jobs.

It turns out, the vans are still so popular with a certain (aging?) segment of the American population, annual van rallies around the country attract thousands of participants.

But the article reminds us that, after more than 60 years of production and 10 million made, the very last VW vans came off the assembly line at the end of last year. That’s when Volkswagen’s Transporter van plant in metro São Paulo, Brazil shut down production.

Reportedly, production stopped because of new air bag and anti-lock braking system requirements for 2014 that were impossible to incorporate into the VW van’s design.

Brazil was the last place on earth where the iconic VW “bus” was being manufactured.  A plant in Mexico stopped producing the classic version of the van in 1995. European production had already been halted as far back as 1979 because the VW no longer met the minimum vehicle safety requirements on that continent.

But the true glory days of the VW van stretch back even further … to when the vehicle was synonymous with laid-back “hippie” lifestyles in the 1960s and early 1970s in the United States.

VW Type 2 Van
“T2 Type 2” VW van, manufactured by Volkswagen from 1968 to 1979.

Known by all sorts of nicknames (the Shaggin’ Wagon and Sin Bin are two of my favorites), the van served as “rolling homes” for many people.

It so reflected the popular culture of the day, the vehicle was featured on pop music album covers for the Beach Boys, Bob Dylan and others.

Bob Dylan album coverDamon Ristau, who directed a documentary film about the VW bus, said this about its mystique:

“It has a magic and charm lacking in other vehicles. It’s about the open road, about bringing smiles to peoples’ faces when they see an old WV van rolling along.”

For many Americans, the vision of a VW van transporting young, bronzed dudes and their surfboards to the California beaches is an iconic image. But the VW van’s brand identity is not at all like that in other parts of the world.

In places like Africa and Latin America, the vans were pressed into more mundane service — serving as mini-school buses, transporting troops, hauling merchandise or construction materials – even moving the mail.

In Brazil, the VW van is known as the “Kombi,” which is short-hand for the German term “Kombinations-fahrzeug” – or “combination transport vehicle.”

Over the years, the van developed a reputation for being breakdown-prone. But the flipside of this problem was that the VW’s simple engine design made it easy to repair.  So it was very popular with its owners — in a sort of ironic twist.

As one Brazilian van owner was quoted saying recently, “Driving a Kombi with your face up against the windshield is a thrilling experience … There is no other van that is so easy and inexpensive to maintain. Anyone with a minimum amount of knowledge about engines and a few tools can fix a Kombi.”

So it seems that no matter whether the VW van has been used for business or for pleasure, it has engendered similar feelings of attachment and affection.

The last VW van may have rolled off the assembly line and into history. But I suspect that many of the vehicles will be with us for decades to come – just like the 1950s American “fin” cars that continue to ply the streets of Havana five or six decades on.

Indeed, as long as there are people with a sense of wanderlust and the lure of the open road to beckon them, the VW bus will remain part of the cultural and emotional landscape in America.

In the drive towards self-driving cars … How do we get there from here?

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car crash in semi-rural marylandA few weeks ago, I was driving to work on the main two-lane state highway here in our semi-rural corner of Maryland.  It was the Friday before Labor Day weekend, so traffic was lighter than usual.  It was also a clear day, with no wet roads or fog.

In other words, a perfect day for driving.

All of a sudden, an oncoming car drifted into our lane.  In fact, it appeared as if it was purposefully targeting the vehicle about four or five car lengths in front of me.

In the inevitable collision that occurred (thankfully not completely head-on but sickening enough at 55 mph), there were injuries and ambulances … a closed road for 90 minutes … statements to the police required of myself and others … and two wrecks to be towed.

The cause of this accident had to be a case of distracted driving – perhaps reaching for a smartphone, checking a text message or some other action that took eyes off the road just long enough to cause a serious accident.

self-driving carsIt got me to thinking about recent news reports touting “self-driving” cars of the future.

Certainly in a case like this accident, self-driving features like nudging the vehicle back into the correct lane could have easily prevented this accident from ever occurring.

Self-driving vehicles seem like a very nice idea in theory, and in practice they’re not very far off — at least if the news reports are to be believed.

Nissan, Volvo, Daimler-Benz and other leading car companies are predicting that commercial models will be a common sight on the road by about 2020 … and by about 2035, a majority of cars operating will have this technology.

But in order to get there from where we are now, we’re going to have to deal with numerous challenges.  Here are a few that seem particularly nettlesome:

  • Will operators of self-driving cars require a different kind of vehicle training?
  • How will highways accommodate vehicles with and without drivers?
  • Will self-driving cars perform equally well in different road environments – ordinary roads in addition to super-highways?
  • Insurers will need to figure out who is at fault if a self-driving car crashes – the car or the driver?
  • How will automotive manufacturers ensure that cars’ onboard computers can’t be hacked?

And here’s another technology challenge:  What sort of back-end servers will be required to process the huge amounts of vehicular data … as well as secure ways for cars to communicate in real-time with the cloud and other vehicles?  (Daimler has reported that its self-driving test vehicle produces 300 gigabytes of data every hour from its stereo camera alone.)

And lest you become really anxious, don’t think very hard about the kind of data that’s being captured, chronicled and saved on each and every self-driving car’s trip – including  “where it’s been when” and “how fast it got there.”

I also wonder about the transition period when there will be a mix of self-driving cars and traditional vehicles sharing the road.

If self-driving cars “react” to other vehicles so easily, won’t it be really tempting for driver-operated vehicles to make end-runs around self-driving cars or otherwise cut them off, knowing that those cars are programmed to move out of the way to prevent a collision?

Roy Goudy, a senior engineer at Nissan, has commented that since “autonomous” cars can react more quickly to potential hazards than can cars driven by people, it will be difficult to have both on the road at the same time.

“What are the rules in that environment, and what do we do to enforce those rules?” Goudy asks.

I think the future of driving is a very intriguing subject.  Self-driving vehicles could mean far fewer traffic-related injuries and deaths … and it could bring more mobility and independence to disabled people and the elderly.

We just need to figure out a way to get there.

Teens’ Rites of Passage: Technology Trumps Transportation

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Technology, not cars with teens.
Technology, not cars, are where it’s at with teens today.

Thirty years ago, the rite of passage going from being a kid to adulthood had to include having your own automobile.

Not so today.

In fact, the percentage of young adults who even have their driver’s license has declined considerably:  In the early 1980s, nearly half of 16-year-olds in America had a driver’s license. By 2010, that percentage had dropped to just ~28%.

What happened between then and now? A number of things, but the biggest may be the rise of consumer electronics and social media.

Recall what an automobile could provide a young adult in the 1980s: access to all of the kid-popular activities of the day: shopping, music, movies, getting together with friends, and so forth.

Today, teens can access pretty much all of that right at their fingertips via the Internet or a smartphone.

You want clothes? Order them online.

Music? Download it to your smartphone.

Communicate with friends? Just Skype or text away.

Meanwhile, between more sophisticated, costly auto maintenance and the high price of gasoline, owning a car has only become more expensive.

Auto insurance premiums for teens? Outta sight.

Plus, it’s just more of a hassle to get a license today. Driver education classes are disappearing from many a public school classroom, the casualty of budget cuts. Stricter state laws make it much more difficult and time-consuming to rack up the necessary behind-the-wheel training hours prior to taking driving tests.

The result is fewer kids getting licensed during their teen years.

In 1983, nearly 70% of 17-year-old Americans had drivers licenses … a figure that dropped to just ~46% by 2010.

Even for 18-year-olds, the percentage holding drivers licenses declined from ~80% in 1983 to only about 60% in 2010.

A recent survey conducted by Zipcar found that millennials (people age 18 to 34) would rather shop online than in stores. No car needed for that.

And when presented the choice between giving up their phone or their tablet computer or their car … two thirds of the Zipcar survey respondents would forego the car.

This is a veritable sea change in attitudes about wheels.

In fact, one could conclude that the very things that cars once represented – the “vehicle” that enabled you to “do what you want, see who you want and be what you want” – is what actually describes the digital and social media world today.

Meanwhile … the car is now just a way to get to your part-time job. Ugh.

Remembering Roy Brown, designer of the star-crossed Edsel, one of the biggest flops in automotive history.

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Roy Brown, designer of the Ford Edsel
Roy Brown, Jr., designer of the Edsel.

I remember my father, who had a 45+ year career in industrial/commercial sales and marketing, having an interesting artifact hanging on the wall of his office: a hubcap from a 1958 Ford Edsel sedan.

It was an interesting prop because it represents one of the biggest marketing flops in American automotive history … and underscores what can happen when product development efforts ignore what market research is telling them.

Recently, Roy Brown, Jr., one of the key players in the Edsel fiasco, passed away at the age of 96. As the lead designer on the product, Mr. Brown bore the brunt of blame for the “glorious failure” that was the Edsel.

Of course, that rap isn’t entirely fair; introducing a new motor car is a team effort that involves a host of people. And in the case of the Edsel, the design of the vehicle was only one of several key failures.

Consider just how many ways the Edsel ran afoul of good product development practices:

  • The car was developed based on out-of-date consumer research. The late 1950s was the beginning of changing consumer tastes in car designs:  moving away from exuberant fins and outlandish colors and towards a more refined style. By the time the Edsel became available at dealerships, consumer tastes had shifted and the country was in a recession.
  • The design of the car was controversial. Its most memorable design feature was its “horse collar” grille, unfortunately referred to by some as a toilet seat. It was different from any other car on the market — but the notoriety wasn’t positive. Some wags joked that the car’s front resemble “an Oldsmobile sucking a lemon,” while others were even less charitable, noting that the grille design was suggestive of a giant vulva.
  • Despite undertaking a highly publicized naming effort for the vehicle that ultimately reached more than 6,000 possibilities being considered, Ford rejected all of these suggestions and chose to name the car after the lone son of company’s founder. The “Edsel” – a clunker of a car name if ever there was one – did nothing to endear the buying public to the brand, seeming more like corporate nepotism taken to the extreme.

Ford predicted great things for the Edsel. The company launched a glitzy ad campaign for the automobile in 1957, touting it as a revolutionary “car of the future” and projecting first-year unit sales of more than 200,000 vehicles.

Instead, when it debuted in Ford showrooms in 1958 carrying a list price between $2,300 and $3,800, consumers were distinctly underwhelmed.

But even with disastrous first-year sales, Ford limped along with the Edsel until finally killing the brand in 1960. In all, only ~100,000 Edsels had been sold over three model years.

The total cost of the Edsel boondoggle to Ford was ~$350 million, which translates into nearly $2.8 billion in today’s dollars.

Roy Brown was the man held most responsible for the failure of the Edsel. But ever the optimist, the designer didn’t let this become the end of his career. In fact, Brown bounced back to work on successful new introductions such as the Ford Falcon and Mercury Comet. These turned out to be everything the Edsel wasn’t.

Mr. Brown didn’t disown his star-crossed child, either. In fact, he drove his own Edsel car (a stunning fire-engine red model) nearly to the end of his life — no doubt happy to know that in later years, mint-condition and restored Edsel cars were selling for upwards of $100,000 apiece. And there are highly active Edsel car clubs with members located throughout the United States and Canada.

So, maybe it’s not such a bad legacy in the end.

AAA Does the Math on the Cost of Automobile Ownership

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Cost of Automobile OwnershipIt’s gotten a lot more costly to own and operate an automobile in recent years. That’s the clear conclusion one can draw from an evaluation done by the American Automobile Association.

The latest AAA analysis, based on a survey of driving costs it conducts annually, has determined that the “average car” (a midsize sedan) costs nearly $9,000 each year to keep fueled, licensed, insured and maintained.

That’s $750 per month – hardly chump change.

Not surprisingly, the cost of fuel is the biggest culprit in the upward trajectory of costs. Fuel prices have risen most dramatically in the past year.

But that’s not the only source of added expense; AAA found other items that have also contributed to higher costs, rising higer than the rate of inflation though not as sharply as gasoline:

  • Fuel cost: Up ~15% over the past year
  • Replacement tires: ~4% increase
  • Automotive insurance: ~4% increase

The typical American motorist is now spending ~$1,000 per year on automotive insurance, AAA finds.

But there are wide swings in the cost per motorist based on driving records, the type and age of the vehicle, the geographic location and so forth, so some lucky souls are paying only half the average.

Another finding: Today’s more sophisticated motor vehicles make them more complicated to service – thus increasing the time it takes to repair them. Time is money – and never more so as when a car is in the service bay!

The only category where cost reductions have been observed lately is in automobile depreciation, which is lower by about 5% compared to last year.

The reason? Reduced new car sales have resulted in a relative shortage of quality used cars available for sale, thereby driving up their value.

As an interesting aside, AAA has been conducting these surveys each year since 1950. Sixty years ago, motorists typically put ~10,000 miles on their cars, and fuel cost just 27 cents per gallon.

Today, the average motorist clocks ~15,000 miles on his or her vehicle in a year’s time. And, as we know all too well, fuel costs have been bounding around between $3.50 and $4.00 per gallon.

Oh, for the good ol’ days … even just five years ago!

Clean energy initiatives banging up against cold harsh reality.

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Inoperable Tesla Roadster being towed on a flatbed.Let’s face it: This hasn’t been a very good year for environmental and clean energy initiatives. First it was the Solyndra debacle — a saga that appears to be never-ending.

Next were the reports of “global warmists” getting caught fabricating documents in an attempt to deflect attention away from the steadily mounting data that’s making global warming no longer the “consensus view” in the scientific community.

And now we have a damning report about Tesla Motors’ vaunted Roadster electric vehicles, the darling of the clean car crowd.

It turns out that most of the Roadster models sold into the market suffer from severe design flaws that can essentially destroy the value of the car. If the vehicle’s battery becomes totally discharged, the car becomes completely immobile; the vehicle won’t start, and it can’t even be pushed down the street.

The only remedy for hapless Roadster owners? Tesla will cheerfully replace the battery system … for a cool $40,000. And the owners will have to pay the entire bill, too, because Tesla’s warranty policy does not cover car damage due to battery failure.

That is correct: For those who purchase a Roadster, when it comes to battery-related repairs there’s no warranty … no insurance available from outside carriers … and no payment plan.

[To be fair, Tesla does offer a $12,000 “battery replacement program” for cars whose batteries are more than seven years old. Of course, that figure doesn’t begin to cover the ~$32,000 battery replacement cost plus ~$8,000 in labor charges.]

Some auto industry wags have started to call the Roadster by another name – the “Brickster.” That’s because when the car is immobilized due to the death of the battery, it becomes completely inoperable — basically thousands of pounds of dead weight.

Owners who face the misfortune of a full battery discharge will come to find out that conventional towing won’t work because the car’s wheels won’t even turn. Instead, they’ll have to figure out a way to lift the entire vehicle onto a flatbed truck for towing and repair … in the process spending additional hundreds (or thousands) of dollars in towing fees.

And lest people think that the battery depletion occurs only because of stupidity on owners’ part in forgetting to plug their vehicle in … not so fast. In some instances cars were plugged in but the electrical charge wasn’t strong enough to charge the battery, perhaps because an extension cord was too long.

And considering the hefty ~$109,000 sticker price of a Roadster, it’s disappointing to discover that the vehicle’s battery can become fully discharged in as little as one week’s time. Good luck with that if you find yourself stuck somewhere that’s not in close proximity to an electrical power source.

And for people parking their Roadster at the airport lot during a family vacation … better just hope that the charging mechanism is working properly. Either that, or have someone check up on your vehicle several times during your trip, lest your vacation ends up costing you an additional forty-grand.

The Tesla cautionary tale is yet another example of the disconnect that exists between the promise of clean energy and the practical challenges of turning it into reality.

To begin with, at ~$109,000 a pop, how many consumers can even afford the cost of a Roadster? And how many people who could afford the vehicle will actually plan to sink their hard-earned cash into a product that possesses such fatal design flaws? Even gas pump prices of $7 or $8 per gallon won’t change that dynamic.

Tesla has sold only ~2,500 Roadsters so far. But its aggressive plans call for manufacturing ~25,000 of its new Model S Roadsters by the end of 2013.

The company’s optimistic forecasts are based on the belief that the Model S’s lower price tag of ~$50,000 will attract a new and larger crop of consumers.

But I wonder if that will actually happen. After all, the sticker price remains high … and the “battery bricking” issue will only become more apparent to consumers as more Roadster vehicles end up on the highway.

Time will tell whether the Tesla Roadster’s fortunes will soar to new heights … or sink under its own (dead)weight. Maybe it’s worth making a $40,000 bet on the outcome.

Mini Cooper and Tata Nano: Two Sizzling Cars that are Just Smokin’!

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Mini Cooper car on fire.
The Mini Cooper: Not exactly "sizzling" in the way their owners would like.
Tata Nano vehicle on fire.
Tata Nano: One smokin' vehicle.
The news that the National Highway Traffic Safety Administration is investigating complaints of engine fires in Mini Cooper “S” auto models from 2007 and 2008 reminds us that the “explosive” popularity of small cars is sometimes accompanied by “smokin’” performance of a completely different nature.

The Mini Cooper’s engine fires have resulted in blazes that can destroy the entire car … and some of those fires happened after the vehicles had been shut off. Owners of the Mini Cooper, Cooper Clubman and Cooper Convertible, you’ve been fairly warned!

Hopefully, the findings from the NHTSA investigation won’t be as crippling for the Mini Cooper as similar investigations of the Tata Nano car in India. That vehicle burst on the scene in 2009 to breathless praise from all quarters, ranging from top industrial designers to leading consumer advocates.

With a base price of just $2,200 – lower than any other car in the world – along with noteworthy styling that had the design world abuzz, it was an irresistible story of the confluence of value engineering and design chic.

Until the car’s engines starting catching on fire.

Tata Motors has been frantically working on the problem in recent months, adding new safety features to the Nano (now dubbed the “Tata No-No” by more than a few industry observers). The manufacturer has also extended the car’s warranty to four years and is offering big discounts and cheap financing to maintain sales levels.

Nevertheless, the company has seen monthly unit purchases slide by more than 80%. It’s certainly a far cry from the heady days of 2008 when the Tata Nano won the prestigious Innovation Award in the Transportation category and was the toast of the design world.

Will the Mini Cooper follow the Tata Nano into automotive ignominy? Likely not. But it’s a huge black eye for a car brand that’s been nearly immune from criticism – at least until now.

One thing’s for sure: Before this week, no one would have expected the Mini Cooper and Tata Nano to be spoken about in the same breath. Now they’re the Bobbsey Twins. And that has to be really bad news for the Mini Cooper.

Car Company Conundrum: Auto Companies Try to Preserve Brand Loyalty

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Big Three Automotive Manufacturers
The “Big Three” auto makers: Exactly how loyal are their customers?

Those of us “of a certain age” can remember the days of the Big Three U.S. auto makers. Each of them had a full brand lineup of vehicles designed to accompany a car owner’s pursuit of the American dream. For each step up the corporate or status ladder, there was a car perfectly suited for the event.

General Motors had its five “ascending” brands: Chevrolet, Pontiac, Oldsmobile, Buick and Cadillac. Rival Chrysler Corporation had its five auto brands that tracked neatly with GMs: Plymouth, Dodge, DeSoto, Chrysler and Imperial.

Ford Motor was a bit different in that it had only three flagship brands – Ford, Mercury and Lincoln – but the idea was the same. Capture the consumer at the very beginning … and stay with him or her for years thereafter. When I was growing up, I can recall friends who came from a GM family, a Ford family or a Chrysler family – such was the affinity and loyalty people felt for “their” car companies.

Fast-forward to today, and the picture is completely scrambled. Not only has the prestige – and market share – of the U.S. car companies plummeted in the face of strong competition from foreign-based car rivals, but the brand offerings of the Big Three [sic] have been telescoped severely.

GM is now down to three flagship car brands (Chevy, Buick and Cadillac), while Ford and Chrysler are down to two each (Ford and Lincoln … Chrysler and Dodge).

The rationale for the recent decisions to jettison brands was to gain better control over operating expenses. Moreover, the amount of true difference between some of the brands was modest at best. So the goal of the auto makers has been to retain the loyalty of buyers and shift them to the remaining brands, thereby controlling operating costs while keeping customers in the fold

How’s that working out for everyone?

Well … not exactly as planned. General Motors dropped Pontiac, Saturn and Hummer in the latest round of brand downsizing in 2009, but had hoped to keep most of the buyers of those vehicles in the GM family. Reportedly, there are ~3 million of these vehicles on the roads today. However, the Detroit News is reporting that a majority of these owners are opting for non-GM products when they’re in the market for a new vehicle – brands such as Honda, Nissan and Toyota.

In fact, statistics from auto research company J.D. Power & Associates show these sorry retention rates for GM during 2010:

 Hummer owners staying with GM: ~39%
 Pontiac owners staying with GM: ~36%
 Saturn owners staying with GM: ~26%

These figures compare to an industry-wide brand retention rate of ~48%.

The statistics on Saturn are probably the least surprising. After all, Saturn was promoted as “a new kind of car company” – presumably in stark contrast to other GM car brands as much as any rivals. It stands to reason that Saturn owners would probably find almost any other company preferable than staying with GM.

GM has certainly tried to keep its customers from straying – including offering special deals such as one-year free maintenance programs, discounts on new GM auto purchases, offers to test-drive GM cars, and special invitations and events to introduce customers to new GM dealers.

Some industry observers feel that GM miscalculated to a degree, in that the three brands dropped by the company had a measure of distinctness that is difficult to replicate in the remaining GM brands. J.D. Power’s Executive Director of U.S. Automotive Research, Steve Witten has noted, “The truth of the matter is they didn’t have many options for people to stay in the GM family. Now, there are holes.”

[It didn’t help either that some Saturn dealerships jumped the GM ship when the brand went away – taking many of their customers with them.]

What about Ford Motor’s experience in dropping the Mercury brand from its lineup? It turns out the news for them has been better. In fact, Ford has managed to hold on to ~46% of Mercury customers.

Ironically, the company has benefited from what might normally be considered a brand weakness: the Ford and Mercury lines had very little differentiation between them. Thus, it has proven easier to shift Mercury owners to Ford vehicles as an alternative.

Chrysler went through its auto brand downsizing a bit earlier … the Imperial nameplate disappeared back in the 1980s (I know: I owned one of the last models manufactured) … while the Plymouth brand bit the dust seven years prior to the 2009 economic near-meltdown.

Instead, the big news at Chrysler has been its shift from one foreign parent company (Germany’s Daimler-Benz) to another (Italy’s Fiat). For many, the jury may still be out on the long-term viability of Chrysler – the next two or three years will be the acid test.