They said it wouldn’t happen again, but it did.  The American auto industry wouldn’t be caught unprepared again when another energy crisis were to hit the economy. Sure, consumers were all too complicit by indulging in the conspicuous consumption of oversized vehicles: the Sport Utility Vehicle (SUV).  You probably have seen them in the shopping mall parking lot.  They extend about four feet beyond the length of the designated parking space, and their width bulges beyond each side of the yellow lines.

While the current energy crisis was emerging in 2003, General Motors decided to pull the plug on its experimental EV1 electric car, and while GM pushed the pedal to the metal manufacturing gasoline hogs such as the Hummer, Toyota was having difficulty keeping up with demand for its Prius hybrid.  

Some accused GM of pulling the plug on the EV1 to demonstrate to policymakers that investing in alternative technologies was bad business.   Instead of researching and preparing for the future, they decide that it was better corporate governance to lobby congress against higher fuel efficiency standards.

As GM continued to meet current requirements and ignore the future, Nissan and a number of Silicon Valley startups announced plans to compete in the energy efficient space.  Thus, the entrance of new competitors makes it more difficult for GM to compete when GM finally has the Volt (GM’s revolutionary hybrid vehicle) ready for sale on November 2010.

It wasn’t until rising fuel prices started significantly impacting sales of SUVs that GM’s board members decided to act.  GM is now in the difficult position of having to make up for lost ground after having suffered a number of years of negative earnings and significant write downs.  A declining economy and oil prices at record highs make GM’s strategy even more difficult to realize.

The Lesson

It would be naïve to conclude that GM’s strategy of building and selling products that were highly popular with their customers as the reason for their troubles.  It would have been foolish for GM to do otherwise.  To ignore the truck and SUV market segment would have strengthened their competitors and starved the company of revenue.

Let’s consider these scenarios. If GM were to have an SUV or light truck rated at 40 or more miles per gallon, would GM still be experiencing the decline in sales in that segment that they are experiencing now?  Did they need government edicts to invest in that technology?  If GM had a light truck or SUV rated at 40 or more miles per gallon during the heyday of the boom years, would that have given them a competitive advantage?  Future requirements delivered today can be a competitive advantage.

One mistake was that GM didn’t prepare and invest appropriately for the obvious future requirement: higher fuel standards. Toyota did, and in April of 2007, Toyota finally surpassed GM as the world’s leading auto manufacturer when it sold 90,000 more vehicles than GM.  I’m sure that’s not the only reason Toyota surpassed GM as the leading auto manufacturer, but because Toyota invested in the future wisely, they continue to lead rather than having to play catch-up in a difficult economy.

Summary

Failure to balance successfully future requirements - even distant future requirements - with current requirements jeopardizes your future viability.   In fact, future requirements can be a competitive advantage if you have the ability to deliver them today.  If you intend to lead your industry, ignoring future requirements today is not an option.  

While being market driven is good business, anticipating the future is even smarter business.  Don’t let your customers fool you; the future is where they will be even if you’re not.

References

Businessweek, May 15,  “GM: Live Green or Die“