In 1996, we observed in these pages that the global automotive industry had reached a plateau in the developed economies.1 By the early 1990s, sales growth had flattened in North America and Europe, and when the Japanese economy went into recession in 1991, the industry’s sole remaining island of rapid growth went with it. Yet, if anything, Wall Street was less patient than ever with the slow growth and incurable cyclicality of the business.
Stagnating wages and improved durability were causing consumers both to hold onto their automobiles longer and to buy used ones when the time finally came to replace them. Yet the already high price of new vehicles made further price increases, in the face of strong competition and sluggish sales, impossible.
We offered two ideas in response. First, we advised the automakers to broaden their almost exclusive focus on selling new vehicles and to start pursuing the 60 percent of light-vehicle revenues to be found further downstream, in service, parts, and ancillary products. Second, we urged car companies to build brands that appealed to people on a more emotional level, by creating vehicles that "surprise and delight" instead of trying to impress buyers with further...