I read a quote this week that made me start thinking about all the political banter surrounding the automotive industry. The quote went something like this: “In retrospect the situation was very predictable...” The context of the quote was not automotive related, but made me think of what scholars have dubbed hindsight bias, which basically explains that when one looks at anything retrospectively it creates false confidence that a situation was easily predictable when it occurred even though the event was very complicated at the time.
This quote is very relevant when considering the debate surrounding the bailout strategy of the automotive industry during the recession. After reading this quote, I thought, “ of course any situation is predictable in retrospect!”… the danger is looking at anything retrospectively enables one to pontificate on how the outcome could have been better if a different path was followed. It appears some of our political leaders are following this line of thinking by offering opinions on how the automotive bailout should have been handled. Some argue that if other paths were followed, we would have experienced an equally positive outcome; with a lower cost to taxpayers, a healthier industry, and of course a better outcome for everyone.
What bothers me the most about this type of rhetoric is that is downplays the sacrifice and hard work that was put into the turnaround plan for the industry. Many dealers had to give up their dealerships, many jobs were lost, and many concessions were made by everyone to get our industry back on track. We are now experiencing a new paradigm where the fundamentals of our industry have changed to enable all the players to be more profitable even in a lower new vehicle sales environment. We have witnessed healthy profits for dealers and OEMs, strategies based on a balance between supply and demand instead of production based sales strategies, and more long-term thinking. This pull based industry forces OEMs to improve products to increase demand instead of pushing sales with incentives. This keeps transaction prices high and improves brand loyalty by providing products that the customer actually wants. Meanwhile, dealers become more efficient, which drives new technology on how vehicles are purchased, priced and sold to consumers. Ultimately, not only has the industry benefited but consumers are already seeing the rewards with better product lineups suited for virtually every need, as well as better service and more transparency on the cost of a vehicle. The health of the industry has also enabled the automotive industry to get through some challenges we have already experienced in 2011, including a volatile economy, exorbitant gas price increases and the tragedy in Japan.
The path the automotive industry took when the economic recession hit hard worked very well. I believe pontificating on how things could have been better is self-serving. We should always use history as a guide for making better decisions in the future. However, using history to support unfounded theories and concluding how easy things were to predict is not very productive. Our politicians should start looking forward as the automotive industry has done and help figure out long-term solutions for our economy instead of looking back and playing armchair quarterback after the game has already ended. Our industry’s success hinges on consumer confidence, an automobile purchase is often the largest purchase many consumers will make; consumers need to perceive long-term stability in order to improve their confidence and ultimately improve new vehicle sales.