Public Takes Dim View of GM, Federal Bailout

It’s often said that Americans root for the underdog. However, this may not apply to underdogs that used to be among the economy’s big dogs. A flurry of consumer polling since General Motors announced its bankruptcy on June 1 finds the public taking a dim view of the company and the federal bailout of the firm.

At the same time, the mass shutdown of GM and Chrysler dealerships means, as one auto-industry analyst puts it, that sizable numbers of consumers are now “untethered” from local loyalties that sometimes extend back for multiple generations, meaning there’s even more flux in Americans’ automotive attitudes than one would gather from simply focusing on the turmoil in Detroit.

If too few consumers were clamoring to buy GM cars before its recent troubles, bankruptcy and government intervention don’t look likely to change that for the better. A post-bankruptcy Rasmussen Reports poll found 41 percent of respondents saying the quality of GM cars will get worse with the federal government as the company’s chief owner, vs. 19 percent saying it’ll get better. That dovetails with a BIGresearch poll in which a mere 14 percent said it’s likely or very likely they’d “consider buying a GM product with the U.S. government in control.”

Likewise, 49 percent of respondents to a Gallup poll said an automaker’s bankruptcy would make them less likely to buy a vehicle from that company. The bailout of GM is itself a lightning rod for public disapproval: In an NBC News/Wall Street Journal survey following GM’s bankruptcy declaration, 53 percent of respondents said they disapprove (vs. 39 percent approving) “of the federal government providing loans and financial assistance to Chrysler and GM.”

However necessary they are, the steps GM is taking to restructure itself can also provoke public ire toward the company. “Compared to other industries, people feel more of a connectedness to cars, and they see how it affects the economy,” says Mark Guarino, senior auto-industry analyst at research firm Mintel. The mass layoffs by GM make a strongly negative impression on people, he says, particularly since so many Americans “may be two steps away from a community that had a plant closing.” He notes that GM hasn’t closed any of its plants outside the U.S., and this itself has provoked antipathy toward the company on the part of people who are aware of the company’s decisions — a sentiment likely to outlive the recession. “The cynicism out there is so strong that people are going to demand more of car companies,” says Guarino.

Amid all the focus on Detroit, it’s easily overlooked that consumers’ car-buying loyalties often rely as much on a local dealership as they do on an automotive brand. With GM and Chrysler both closing many dealerships as part of their bailout-plus-restructuring, some customers will be up for grabs, while others will adjust their thinking. According to Guarino, “Essentially, customers are now going to say to a dealer, ‘What are you going to give me?’ That loyalty to a dealership is becoming a thing of the past.” He adds that there’s now a lot of confusion among consumers about why particular dealerships were shut down — and the automakers haven’t really addressed this. “I think we’re still in the damage period right now.” And it’s not as if the problem will simply go away, even as consumers overcome their current reluctance to make big-ticket purchases. “Dealers aren’t going to know a lot of their customers,” says Guarino, “and the customers who come to a dealership aren’t necessarily going to be committed to buying those cars.”

To the extent that consumers are showing interest in GM and Chrysler vehicles, price is an obvious factor. There’s actually been an uptick in recent weeks in “click traffic” for those companies’ models on kbb.com, the Kelley Blue Book site to which consumers go to research cars they might buy. It may partly be a matter of patriotism — a wish to keep U.S. automakers alive, says Jack Nerad, executive editorial director and executive market analyst for Kelley Blue Book, which tracks the automotive market and consumer attitudes toward it, and kbb.com.

But he says many consumers smell blood, and he characterizes their thinking as being: “Let’s pick the bones of this carcass and see if there’s a great bargain to be had.” Nonetheless, he notes that Chrysler “took a major hit in sales” after it declared bankruptcy, and he expects GM to do the same.

While the recession has dealt a body blow to most automakers, polling suggests that Ford could benefit from its status as the one of Detroit’s Big Three that has not gone bankrupt and gotten a federal bailout. For one thing, people are quite aware now of who has gone bust and who hasn’t. In Gallup’s polling, 80 percent of respondents knew that GM had declared bankruptcy and 74 percent knew that Chrysler had done so. Eighty-five percent knew that Ford has not gone bankrupt. Another poll this month, by Fox News/Opinion Dynamics, gives an indication of how this knowledge affects consumer attitudes toward each of the three companies. Asked whether they have a “generally favorable or unfavorable opinion” of them, respondents were just slightly more positive than negative about GM (48 percent favorable, 44 percent unfavorable) and Chrysler (46 percent favorable, 42 percent unfavorable). It was quite a different story for Ford, whose favorable tally far outweighed its unfavorable vote (72 percent vs. 19 percent).

Can Ford take steps to capitalize on its non-bailed-out, non-bankrupt status as it seeks to connect with consumers? “I think they already have, subtly,” says Mintel’s Guarino. Earlier in the year, when people on the message boards of automotive Web sites were indiscriminately badmouthing the Big Three as seekers of bailouts, he noticed Ford correcting these assertions, “sort of as a rumor police.” For that matter, he thinks consumers would react favorably if, “in a tasteful way,” Ford went farther: “I think they could directly put ads out that say, ‘We’ve suffered as much as any company, but we haven’t put our hand out.'”

Naturally, it’s not helpful for any automaker, bankrupt or otherwise, that gas prices have been shooting up during the past couple months. (The average price of a gallon of regular was $2.69 as of last Friday, according to the AAA’s Daily Fuel Gauge Report, more than a dollar higher than it was at its recent low last fall.) And, if anything, problems in the general economy mean consumers are quicker to feel pinched by high gas prices than they were during last year’s steep run-up in pump prices. “After seeing gas prices go up and down, people are sensitized to what high prices can do to their family budget,” notes Kelley Blue Book’s Nerad. “It’s changed the threshold of pain,” he says, since people are already pressed financially.

The one saving grace, for now, is that consumers don’t think gas prices will go as high this year as they did last summer, when they peaked at $4.11 per gallon. Gallup polling in the middle of this month found consumers predicting, on average, that the price this year will top out at $3.39 per gallon. Still, though the current price of gas isn’t terribly high in constant-dollar terms by historical standards, 56 percent of respondents said the recent rise has caused them financial hardship, including 12 percent saying it has amounted to “severe hardship.” That’s unlikely to put them in the mood for car shopping.

When the recession ends, will consumers buy new cars as often as they did in pre-recession years? That’s a question people high up in the auto industry are wrestling with, says Nerad. One factor weighing against a return to higher frequency of car purchases is that the industry has gotten away from conspicuous annual model changes. With car models now looking unchanged for longer periods, “I can buy a two- or three-year-old car and pass it off to my neighbors as a new car,” says Nerad. In part, it’s a question of whether consumers view cars simply as transportation or “as a talisman” about which they get excited, says Nerad. “People are more willing to pay big bucks for something they’re excited about than for something that’s just utilitarian.”

Nielsen Business Media