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Bonus Tactics article: Understanding — and communicating — the implications of an auto industry meltdown

November 17, 2008

By Chris Cobb

As the fate of the auto industry remains unsure, the debate over bailout packages continues among Washington politicos. The Bush administration announced its support in aiding the struggling auto industry, but does not think the money should come from the $700 billion financial system rescue package. Last night, President-elect Obama appeared on “60 Minutes,” stating that the companies do need aid, but that it should come in the form of a long-term plan rather than a blank check. And on Friday, Goldman Sachs suspended its rating on GM, saying that the company needs about $22 billion in aid.

After interviewing citizens across the country, Reuters reports that most Americans think the $25 billion rescue plan is unfair and that it would be difficult to reform these automakers at this point in time. Some think it would be best for the automakers to go bankrupt and many of those interviewed do not think the industry will survive long-term — and the bailout would be “throwing good money after bad.” Chris Cobb speaks with auto industry executives to investigate the situation further.

These are dire times for the North American automotive industry and, despite its reach into the economic lives of millions, few people are sympathetic for its plight or interested in its financial resuscitation.

As General Motors’ stocks plummet to the lowest levels they’ve seen in 65 years, there is growing pressure for the government to pass a rescue package worth up to $50 billion to assist Detroit’s troubled auto industry — or risk the economic fallout of a bankruptcy.

Automotive experts that were consulted for this article agree that there is a gap between American consumers’ perception of the country’s auto industry and the reality. They believe that the industry is partially to blame for the lack of effective communication that has caused a nation beyond Detroit to be largely unsympathetic to the current dilemma.

According to a new report by industry analyst David Cole of the Center for Automotive Research (CAR), Americans and the politicians who have been reluctant to accept an auto industry aid package are missing the big economic picture.

In his report, “The Impact of the U.S. Economy of a Major Contraction of the Detroit Three Automakers,” Cole offers this best-case scenario for a 50 percent contraction in U.S. auto industry operations:

• 2.5 million jobs could be lost in 2009. Of those, 240,000 would come from automakers, 800,000 from suppliers and 1.4 million from a ripple effect.
• In economic terms, a 50 percent cut in the U.S. operations of the Detroit Three (GM, Ford and Chrysler) would reduce personal income by more than $125 billion in the first year, with a total loss of $275 billion over the course of three years.

Cole adds, “The impact of this personal income loss on fiscal government operations at the local, state and federal levels includes an increase in transfer payments, and a reduction in social security receipts and personal income taxes paid. The net impact of all three of these categories results in a loss to state and federal government of $50 billion in 2009, or about $108 billion over three years.”

Stan Stein, executive vice president and global account director at Weber Shandwick Worldwide in Michigan, explains this further.

“The loss of jobs if the U.S. auto industry fails — 2 million-plus according to at least one study — will have an immediate and escalating trickle-down effect on consumer spending,” he says. “Travel, retail, consumer electronics, restaurants, a bigger house or home improvement — any category remotely considered discretionary is likely to be affected to some degree.”
Mary Henige, APR, director of executive and strategic communications at General Motors, agrees that there is a perception problem, but says that with one in 10 American jobs linked to the auto industry, North America needs to understand the implications of the trickle-down effect.

“It’s not just Detroit,” she says. “We’re in all 50 states and in nearly every community. Car sales in October have not been as low since the post-World War II era and we’re in an economy that hasn’t been as bad in 75 years. It’s something new for everybody.”

The shift in the economy means that Americans are viewing personal financial situations differently than before, focusing on what this crisis means in their own lives.

“People, in general, are thinking about themselves,” adds Henige, “and are angry at the state of the economy so it’s easy to find a villain.”

However, Henige asserts that the auto industry is being unfairly blamed as an economic liability.

“The reality is, we have taken tons of costs out of our operation and become more efficient. Our vehicles have been getting incredible reviews from bloggers and newspapers and winning awards.”

Mike Aberlich, who retired last year as director of corporate and internal communications at Chrysler, says communications in the auto industry has traditionally been about the short term — “always worrying about the next deal.”

The small-scale competition contributed to the shortsightedness that led to the current position of the auto industry.

“There has been a lack of long-term strategic thinking and a lack of co-ordination between companies,” says Aberlich, who spent 25 years in the auto industry. “We never got to the point where we realized that our real competition was Japan. But that’s the nature of the business. You’re always worried about your next sale.”

Auto executives, he says, should take notes from the oil industry.

“As soon as there is a potential negative for the industry or potential positive to take advantage of, they start working together,” Aberlich says. He notes that the oil industry has third parties talking to the public about their trade, but that the automotive business does not do this enough. “We haven’t been as sophisticated as we might have been in extolling our virtues and as a result a large part of the population doesn’t care about Detroit or the auto industry,” he says. “We have a much bigger hill to climb than other industries.”

Jason Vines, Chrysler’s former vice president of communications, says that if he were charged with getting the message out to the public, he would forget about specific products and immediately address the economic reality instead.

“I would go right to the American people and say, ‘Look, there is going to be an auto industry. We will get through. People need transportation but do you want all of that transportation coming from Japan, Germany and Korea? If the answer is no, you don’t care, then fine. But let me tell you what that means,” he says. “Let me tell you about the impact of the auto industry on our day-to-day lives.”

David Barnas, executive director of global external affairs at Delphi Steering, says the auto division’s message should also emphasize that the industry is as much a victim of the financial crisis as other businesses.

“The domestic auto industry is one of the pillars of the manufacturing sector in this country,” he says. “The crisis is very real and right now, and there would be huge economic and national security implications if it were allowed to fail. These points can't be emphasized enough in the days and weeks to come.”

Barnas also thinks it is noteworthy that the most recent and significant challenges negatively impacting the domestic auto industry — the credit crisis and the spike this past summer in gas prices —were brought on by factors outside of the auto industry.

As these changes occur, old methods of communications may no longer be enough to effectively connect with the public. Stein believes that the current crisis will push outside agencies working with the auto industry to re-think their strategies.

“We’re going to have to be smart in trying to reach consumers with compelling messages about products,” says Stein. “We’re going to have to be cutting edge and be innovative on the digital front.”

Author and journalist Chris Cobb is a senior writer at the Ottawa Citizen where he specializes in reporting on media and government communication. He is a frequent contributor to PR Tactics.


What this means for PR pros in the auto industry

Today, AdAge published an article on the effects of a failed bailout on the advertising community. The Big Three accounted for 3.3 percent of U.S. ad spending in 2007, which is $4.6 billion in measured spending, according to Ad Age DataCenter’s analysis of TNS Media Intelligence data. And the world’s top-four agencies — Omnicom Group, WPP Group, Interpublic Group of Cos. and Publicis Groupe — depend on these same carmakers for about 6 percent of their revenue.

Meanwhile, the current automotive crisis seems to bode ill for the PR practitioners working in the profession and in the dozens of agencies with automotive clients, which have made millions off of the industry.

“The automotive industry is a major sector,” says Stan Stein, executive vice president and global account director at Weber Shandwick Worldwide. “If you look at the client roster of many major agencies, domestically and globally, you’ll find an automotive company.”

There is no accurate audit of how many PR professionals depend directly on the automotive industry for their livelihoods, but according to Chrysler’s former vice president of communications, Jason Vines, it is in excess of 2,000, not including those in automotive-related idustries.

Vines left Chrysler last December but maintains close ties to his former colleagues as well as executives in other car firms — they tell him a similar story.

“It’s depressing,” he says. “There’s a malaise and everybody is worried for their job right now. The heavy lifting has still to come. It isn’t Armageddon we’re facing, but it’s pretty damn close.”

Even in the worse case scenario, Vines says, there is a potential silver lining for PR professionals.

“The good news is that over the years, other industries have recruited auto industry PR people and for a couple of reasons,” Vines says. “One is the Midwestern work ethic — and second, PR people in the auto industry face everything. They face constant crisis, they face rabid competition, government regulation, and they face frivolous lawsuits and not so frivolous lawsuits. It gives you grounding in almost every aspect of communication, which is very portable to other industries.” — C.C.



tzjones says:

I wonder if any of the pr pros had the opportunity to tell the CEOs that flying their private jets to DC to ask for a bailout would be a disaster? The national media today is full of ridicule for the CEOs about this move as it clearly symbolizes that the Detroit 3 leadership just doesn't get it at all. I imagine that the PR teams are probably not given much say in these matters, but this symbolic move demonstrates unfortunately why many people are skeptical. If they still jet around like this, how can anyone have confidence that things will change?

Nov. 20, 2008

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