industry was facing intense fuel economy standard pressure GM spent $1m on market research I cut the forecast in half ... turned out to be worse than that no one would speak before Roger spoke pre-Acura, Lexus, Infiniti Vice Chairman of GM...
Unknown Speaker 0:00
I took the research and basically cut the forecast in half. No one would speak before Roger spoke, looked me in the eye and said, Warren, Japanese don't know how to make luxury cars, if you're going to take the time and the effort to listen and understand what the customer says, pay attention to. And if there was anybody who knew how to evaluate the interior of a vehicle that I've run into in in my career is Bob Lutz.
Unknown Speaker 0:31
Jeff Sterns connected through cars, if they're bigwigs, we'll have him on the show. And yes, we'll talk about cars and everything else. Here he is now, Jeff Sterns
Jeff Sterns 0:48
Jeff Sterns connected through cars with my dear friend, Warren Brown, came to reveal deeper secrets or more concisely, deeper secrets, revealed I'm so excited to have you back, Warren, I'm going to look at my notes. And I don't know where I want to start. But I don't know don't spend all the money on market research and then ignore it.
Unknown Speaker 1:14
You have to go all the way back to 1984. The whole industry was facing intense fuel economy standard pressure. Man, I think that they were more nervous back then, than they were during the announcement of the Obama standards. Because this was kind of like the first time after the two energy crisis that the government was really getting serious about high fuel economy standards. And the solution, or at least the proposed solution by engineers was, you know, we were going to downsize everything and make everything smaller. That was the soup to assure at the time that the you know, engineers got a little smarter as they tried to grapple with Obama standards, but that that'll be for another day. So it was all about downsizing. And the biggest fear was that they would have to downsize Cadillacs and big Buicks, and big OLS more appeals, because we were making an awful lot of money then on each one. Okay. And so, I had the unique position that I was not only responsible for doing the forecast of the next generation of vehicles, but they also commissioned me to do the market research. And it was the first time General Motors had actually spent a million dollars on a piece of market research. That was a big deal back in 1984, right, two cities, we went to Dallas, Texas, and Sacramento, California. So you can imagine the logistics, the cost, you know, hauling all of these future, you know, fiberglass clay models around and you know, getting getting heard of people to come in and evaluate them, which we did. And the whole thing, you know, from from Dallas to Sacramento probably lasted about a month to get it all done, get it all organized. But one of the things that was very interesting at the time, is we were having people do a little bit of test drives of new engines. And we had, we're doing that at the Dallas airport. You could do stuff like that, at that time in 1984. And I had the opportunity to park what was then a the new Buick Park Avenue outside of the front of the Dallas Hilton Hotel at the airport. And I just walked across the street and just watched, nobody stopped to look at the car. No one. It was just another car sitting in front of the airport hotel. That was the first leading indicator for me. Okay. And so that was didn't cost me a million bucks to park that car in front of the Dallas airport. So we got it all done. And we brought it all back. Not to my surprise, but to the surprise of many, which I'll get into only 5% of the people that we surveyed because we don't put badges on the vehicles. This is all done without badges without hood ornaments without anything right. So 5% of the people in the research said that was a Cadillac 5% man not too many more said that they would buy the vehicle given the specifications we gave them now, for perspective, the total amount of sales for the vehicles at that time for the Eldorado the Seville, the Riviera and the Toronado those brown numbers 175,000 units, and we made a lot of money on each unit. Okay, that paid the bills, right? Today, the pickups, pay the bills, but then those are paying the bills. And so I took the research and basically cut the forecast in half 75,000. Now fast forward yet, it actually turned out to be worse than that. So I brought the forecast in into my boss and he says, What is this? He says he only got 75,000 units here. And he said, What if we got to take this to management? What rationale are we kind of give them for cutting the forecast in half? And I said, well, the How about a million dollars worth of murder research that we just thought have done? He says, No, this is this is this is not going to be good. Prepare the presentation. But you can't go. You can't give it because you'll be slaughtered. He or he already knew you'll be slaughtered, if you give this, but you can come and sit in the back. Okay, so I did that. And we're in a meeting. And now what I want you to imagine is a Dyess with Roger Smith and Howard Carroll and Jim McDonald, probably, oh, I don't know, whoever was the CFO at the time, right all sitting there. And my boss puts on the presentation that I wrote for him. And no one would speak before Roger spoke. So Roger said, well, Howard, what do you think of the results? And Howard said, Roger, this is the most unprofessional piece of market research I've seen in the history of General Motors. And Roger said, Are you sure you're not shooting? The messenger? said, no, no, Roger, customers will get used to the car. Okay, plus, we have plus, we have no choice.
Jeff Sterns 7:00
You know, I don't know Roger Smith. I only know of Roger Smith and have read books by executives. And that's interesting to me that he said, Are you sure you're not shooting the messenger that he was potentially that insightful?
Unknown Speaker 7:17
No, no, look, you got to understand this. This set of vehicles that were paying the bills, he understood that, okay. Nevertheless, they went through with the program, they didn't believe that the Japanese were ever going to make luxury cars. As the matter of fact, the head head of the program at the time, looked me in the eye and said, Warren, Japanese don't know how to make luxury cars, so we don't have to worry about them.
Jeff Sterns 7:49
So we're pre Acura, were pre Lexus or pre infinity. What was Sterling English with a Acura engine or something?
Unknown Speaker 7:59
This was certainly before at this was certainly before accurate because deep secrets revealed I held on to actually do that program when I left General Motors anyways. So it was very, it was very tense. It was very difficult, especially during the time, you know, this, again, is like mid 1984. The program was about a year and a half away. They knew they knew that this was going to be a disaster. Okay. And unfortunately, the customer or the respondent said the research said the car was too wide, meaning it was too wide for its length that it the proportions lots would Lutz would say it this way. The proportions were bad. It gave her the wrong impression of the proportions. Well, that being said, that wasn't going to stop Cadillac from cutting the vehicle open and making it even wider so that they could put their VAT engine which made the vehicle worse. So fast forward. sales weren't good. I think it fundamentally was one of those historical steps that put a kink in Cadillacs armor. There were many others to follow. But that was a real big kink that I observed. Close close at hand it was you know, you throw the Cimarron in the same category the the Cavalier Chevrolet Cavalier that had lipstick put on it called the Cimarron from Cadillac which was also a disaster or the Alante, etc. But it was the first big kink and it and it really mattered. Now, that whole program and the difficulty with that program, set in place a whole internal audit system inside General Motors, which I helped write a piece of it that had to do with the market research, to at least have a higher visibility of the output of market research at a much earlier stage. Okay, because it wasn't good now, you know, you fast forward to 2002. And Bob Lutz came on board and basically said, you know, doing product programs, you got to do them from the gut, right? All that market research is BS, you know, car guys need to make cars. Okay? I don't necessarily agree to that. I think customers can tell you way, way in advance whether the proportions are good, and whether there's value in what it is that they see. And clearly in the research that we did, there wasn't value. Now, on the day that he retired, Howard Carroll wrote a note to the board, which still hangs in my old boss's office in Capitola, California. And that note, essentially said what we did on the 1986 ek program was probably criminal, meaning we hurt the company by doing this. This was the same guy who told Roger, Roger, the customer will just get used to it. Okay, they'll just get used to it. So what was the lesson for me? Do I believe that murder research is perfect? No. But if you're going to do it, if you're going to take the time and the effort to listen and understand what the customer says, pay attention to it.
Jeff Sterns 11:38
So when Howard Carroll, Vice Chairman of General Motors says, Don't worry, they'll get used to it. This is an old General Motors. Culture, really, isn't it?
Unknown Speaker 11:52
I think that the folk like Mark Royce, Mary, that are there today, clearly understand and as matter of fact, there was a piece in the news just the other day, that that the chief engineer said, you know, we're gonna have to demonstrate to the customer that there really is value in electric vehicles. That's our job to explain that why it's there? No. I think that it was the yes, the old GM, it was the GM that went bankrupt. You can trace the the seeds back to and I submit back to that first big kink in Cadillacs, armor, and the hubris that said Japanese don't know how to make luxury cars when we knew that they were already doing vehicles of that type, and selling them in Japan. That that was hubris that was total total hubris that ultimately they paid the price for. I wasn't really clear on the research, the research not only tested the Eldorado Seville, they also tested what was then known as the C body cars, the Park Avenue the 98. So it was a whole system of luxury cars that needed to be downsized in order to meet the standards. So that that that's that's why the park gap was there it was it was a simultaneous tested both of them. Now, all you got to do is do a picture of the 84. And a picture of the 86 side by side. And you'll see what I think was that the external styling and dimensions and the look and the brand character of the vehicle, they relied upon that so much that the features and performance of the vehicle almost took a backseat. I mean, there was nothing that dramatically new in the 86 as I recall it that was in the 84 so here you weren't offering anything on the interior that was maybe offsetting some of the exterior shrinkage that you had to do to make those cars successful in terms of CAFE standards. It hurt and so you know this morning I went back and looked at the sales just to be sure that that because I because I did a small piece for awards back about six or seven years ago on this and sure enough, the the sales were cut in half because it was horrible. And I said internally at the time after I had gone overseas etc. The press will never know this this is why it's deep secrets revealed but this would make the Edsel pale by comparison.
Jeff Sterns 14:45
But I don't remember you know riding in those cars and I rode a few of those cars, Cadillacs Buick Oldsmobile, they didn't I was amazed by how similar in size the interior felt. So I think part of it was just an engineering problem putting the package together with what they had at the time. When you say the CTS and x t, cars now would seem smaller than that car. Also, the what is it ek
Unknown Speaker 15:22
in 1986. It was called the E k platform today. It's got a whole new series of acronym. Yeah. Okay.
Jeff Sterns 15:30
But the Cadillac got smaller in the late 80s. When these GM cars got smaller in the late 80s. They were competing with the prior size. Now, Cadillac, for example, their targets BMW,
Unknown Speaker 15:47
and therefore the package has to be tighter, the performance has to be better. The features have to be interesting, especially as we're moving into electric vehicles. You know, I saw the key Evie six last night on the Emmy Awards. I don't know if you saw that phenomenal looking car looks. It's an eye grabber. And I had an opportunity to test drive, Pollstar sedan, which they delivered to my house to test drive. It's a rocket ship. But the features and the look, you know, I I had an opportunity, a great opportunity to be at a couple of events with lots. And if there was anybody who knew how to evaluate the interior of a vehicle that I've run into in in my career is Bob Lutz. Okay, he could sit in the car, turn the dials, do the switches. Point out the different the nine different ugly black, those he's sworn See, this car has nine different blacks on the inside. It's never gonna it's never going to work with luxury customers. It's not sophisticated enough. Just turn this dial and I'll turn that dial, see how that one feels. You know, one was like turning one of the old Sansui tuners on on a stereo system. The other was, you know, clunk, clunk, clunk. So the whole sophistication of the vehicle in that segment has changed and size is important. But but only to the interiors only to the people sitting in the vehicle, right? There's no longer the prestige of I've got the longest car on the block, just not there. And so I think you're right, from 84 to 86. That perception of what made brand equity then her Cadillac wouldn't matter today.
Pool hustler, junior mail boy, senior mail boy, analyst, international exec, consultant, adjunct prof of economics at Lawrence
Warren is first a husband and father. Currently learning how to fly a jet and looking to get into tournament bridge, he figures it's safer than skiing the Swiss Alps where he almost spilled his brains! Warren went from pool hall to mail room to international executive level which took him to places like Brazil, Poland, Germany, Russia and Switzerland. Warren retired from GM only mos before bankruptcy took 75% of his pension and nearly his entire (GM stock) nest-egg. Warren runs a successful consultancy to the industry now.
He currently serves as an adjunct professor of economics at Lawrence Technological University.
-Business experience provides clients with insights and analysis to grow their business profitably:
-Sales and Distribution growth strategies.
-One-day forecast seminar with case studies.
-Target Product asessment for automotive suppliers. Majority of work covers consulting suppliers that need to respond to RFQs (volume related) and submissions to banks for due diligence.
-Assesment of industry demand for Emerging Markets
Specialties: Business Analysis, Multi-Cultural, Large-Deal Negotiations,
Market Assessment and Forecasting,