LAS VEGAS—An icon in the automobile manufacturing industry shared with credit unions his ideas on the differences between icons and idiots, where the auto industry may be headed, and how credit unions can grab more marketshare in the financing space.
Bob Lutz, the retired vice chairman of General Motors who also held positions with BMW, Ford, and once headed Chrysler global product development, has been a high-profile and outspoken leader in the automobile industry for decades. He is the author of the books “Icons and Idiots,” “Car Guys vs. Bean Counters,” and Guts. Lutz keynoted CU Direct’s Drive 15 Conference here.
Bob Lutz speaking to CU Direct's DRIVE 15 meeting in Las Vegas.
Contrary to some, Lutz does not believe the personal automobile (and the financing to own them) will be replaced by software apps anytime soon.
“The automobile is evolving seemingly daily, and will continue to do so until ultimately, autonomous cars, and it’s going to change everything that we think cars are about,” he said. “The only thing that’s not going to fundamentally change is they will remain expensive items, will be owned by all people, and you will have to pay for them. Most cars will have to be financed.”
Lutz downplayed predictions of China’s automobile market going “sideways,” saying he expects the world’s most populous country will continue to drive global auto demand.
Automobiles, he said, fill a need in people, as nothing else provides the the freedom personal space that the car does. Lutz recalled being in a meeting in then West Germany when a government official said that cars “enslave” people and everyone should have bikes, like the citizens of the then communist East Germany. But an East German who was on hand at that same meeting responded, according to Lutz, “Are you nuts? The desire for individual automobile transportation is the most intense desire we measure in our public.”
'Drooling Millennials'
Lutz also dismissed the suggestion that Millennials aren’t interested in cars anymore, either, saying a much-cited study that came to that conclusion was badly flawed” and “came to a wrong and sensational conclusion.”
“People say kids don’t like cars anymore. I will tell you what: when I drive my new Corvette Z06. I see a lot of drooling Millennials.”
But it isn’t in being “global” where Lutz believes credit unions have a strength.
“I think credit unions have a unique advantage over the captives and the banks,” he said. “Credit unions are local, they are in the market. I don’t think that the large banks, and certainly not the captives, have the opportunity to form the personal business relationships with the dealers that sell the car in the ways that an actively marketed credit union can do. We all know the importance of that when all is equal.”
Where Lutz wants to see improvements in the car-buying process is in the entire purchasing experience, even when financing isn’t needed. He noted that even though he was paying for that Corvette in cash, it “still took a half-hour” to get out of the dealership, in part because of what he saw as too much “consumer protection stuff.”
“If I were in (the credit union) industry I would look for ways to examine everything that goes on and examine for ways to take time out, processes out, to shorten the time to make it simpler and easier for the dealer and the dealers customer,” he said. “Whoever figures that one out, if they have equal rates or even a tenth of a point higher, will have an enormous advantage.”
The Path to Success
Speaking to his career in the car industry Lutz said he has always been guided by the belief that the “path to success is to pursue product excellence and customer satisfaction.”
Books by Bob Lutz.
“It is best to be guided by the notion that this company is going to provide a superior product and this company is going to please the customer more than has ever been done,” he said. “Why do brands like BMW and Mercedes command a $10,000 premium in just about every class of car. The technology today is really all the same. Technology in a Ford Fusion or a Chevy Malibu or a Mercedes E Class is 99% identical, and the workmanship is at least as good. Why do people pay more? Because they earned it. They earned it with decades and decades of always trying to produce superior automobiles, and the rest of us are Johnny Come Lately’s. We don’t have the $5,000 or $10,000 worth of trust that the Germans do. And today I say quite confidently I don’t think their cars are any better, but for decades they were.”
Lutz joked that he earned an MBA in the same way “sailors got tattoos. I got it before I knew any better.” He made the joke to preface what he sees as a “fatal flaw” in American business and American business schools.
“Everything is always about money, ratios, ROA, ROE, etc, etc., and all these techniques for cost optimization,” he said. “And I’ve never seen a business school case where the solution is ‘Our product isn’t good enough,’ or ‘We aren’t working hard enough to please the customer.’ In these business school cases the revenue or sales case is always a given, and then you have to figure out where the leakage is on cost.”
Railing Against 'Bean Counterism'
That has been a theme of his books, as is clear in the title “Car Guys Vs. Bean Counters.” What’s often misunderstood, he said, is who he is talking about.
“I have railed against ‘bean counterism.’ But I’m not referring to the profession of accountants or finance guys,” Lutz said. “Just because you are in finance or accounting doesn’t make you a bean counter. Bean counting is a state of mind. It’s someone who thinks narrowly, doesn’t want to try new things, is very rigid in following the process we’ve always followed, as opposed to be willing to try something new. The car guys are people with an imagination, people will take an intelligent risk, will spend a few dollars more if you can see the return. And you find those kinds of people on both sides of the aisle.”
Lutz said he wants to see more business schools educating students in that way. It’s a theme that animates him, as he made clear.
“The creeping malignancy has transformed the once all dominating U.S. economy that produced and exported and which is now dominated by imports is across all sectors all boils down, in my judgment, to a matter of focus, priorities and business philosophy,” he said. “These are the leaders who are primarily motivated by financial reward and who bake that reward into the business plan, and then work to that. That is completely backward. It’s better to start out with the winning vision and then trim it back if you have to make it fit your financial capability. I’ve seen cars that were totally defined in numbers, dimensions, weight, number of new parts, cost base, etc., before the car even went to the designer, and then the designers are told to put a pretty wrapper on it. You have to start the other way around with the vision of perfection and the dream of what it is that you want to see. That’s coming off the top and working down, instead of coming off the floor and doing the best you can.”
'Incredible Stupidity'
Lutz said he has seen “incredible stupidity with real long-term damaging results in many car companies where somebody says we’re not going to make our quarterly earnings target, so everybody has to figure out what to reduce. The worst I ever saw was at GM seven or eight years ago. Gm always had good residuals on the Corvette, as demand always pulled on the Corvette, which kept used car prices up. At a quarterly meting it was decided to shove another 10,000 Corvettes into the dealers so we could wholesale them, and it was the number-one margin car in General Motors."