Former vice chairman of the Chrysler Corporation, Bob Lutz
(4 of 11)
RAY BRADY: I think the question you have to ask yourself is whether advertising was really important to business in the 20th century or something that sort-of rode on the coattails of all of the seminal industries that were developing.
And my own view is that it isn't given enough credit for the extraordinary ability to create demand, which I think has been so much a part of the system that has distinguished business and economic growth in the United States from other places.
If you look around the world, there's really no other country that has as finely developed an advertising industry. And, while there are many who on critical or aesthetic grounds may criticize, I really think that that is a seminal part of capitalism and it is worth looking at the advertising giants.
WALTER ISAACSON: Yeah, it's one of the theories of the century. I guess, Galbraith had that—
RAY BRADY: Well, two-thirds of our American economy is consumers spending money, and I think you have to have to lay a lot of that at the door of the advertising people.
Sometimes it's bad. Sometimes we get ourselves in a hole by spending too much, but it is definitely — I think — the influence of the advertising people. And it keeps our economy moving.
WALTER ISAACSON: Well— what?
ROBERT A. LUTZ: I guess— I guess—
I have a slight problem with it because I was stung so often by such comments as "it's advertising that makes people buy sports utilities," "it's advertising that makes people buy large gas-guzzling cars and so forth."
I honestly do not believe that advertising— while advertising is a very useful lubricant, can help form brand images and hopefully change perceptions about how people feel about brands if that's necessary. But I believe in advertising and demand-creation in terms of creating the right aura and making the proposition— the product or service known to a great many people.
I do not believe, however, in the theory that advertising can create demand out of nothing and make people buy things that they wouldn't otherwise need. So, I always view as— you asked the question, "Was advertising the motor? Or was advertising the beneficiary?"
I think both is true. It's a circularly interactive relationship in that, if the product doesn't sell and the revenue isn't generated, guess what gets cut — the advertising budget.
DARLA MOORE: Right.
WALTER ISAACSON: OK, let me— let me—
DARLA MOORE: I don't— I agree with Bob—
WALTER ISAACSON: I know.
DARLA MOORE: —too. I think advertising— I think we're missing the point on some of these things.
Advertising is a consequence of the business activities in this country. That somebody just came in and filled a hole, but it is certainly not the lead.
If the people don't have the money, you can advertise 'til the cows come home, and the people are not gonna buy because they can't buy.
ROBERT A. LUTZ: Or if they don't like the product.
DARLA MOORE: Or if they don't like the product— but first of all they gotta have the wealth and the money to buy the product.
That's the point of departure of this whole discussion in my opinion.
NORMAN PEARLSTINE: But we've gotten to a point where there are now industries you can't imagine surviving without advertising — television being one example, just about every content site on the net, being another.
DARLA MOORE: That's why you better hope the economy stays active—
ROBERT A. LUTZ: That's right.
DARLA MOORE: —because you'll be out of business.
WALTER ISAACSON: Let me use this opportunity to turn it to your area of expertise. You know, the auto-transportation industry.
Did Ford, Chrysler and General Motors — three of the companies you've worked for — did they end up being the dominant giant in this century because they built better cars? Or because they marketed them and advertised them better?
ROBERT A. LUTZ: Well—
WALTER ISAACSON: Was there any major difference in the product?
ROBERT A. LUTZ: I would argue that there was a time when Detroit did not— didn't do anything in a superior fashion, didn't produce superior products and didn't advertise them properly.
I think we were into aberrant forms of advertising for a while that had nothing to do with informing the consumer about the product, not did we produce very good cars at some periods in our history.
I would also say that the American automobile industry is no longer the global dominant force that it once was. But, again, it's a little bit different when you're talking about toothpastes and cosmetics because there marketing costs can be 90 percent of the total cost of the product.
And advertising can overwhelm the other product attributes, but in a consumer durable like a car your product cost is, like, 95 percent, and then you have — maybe — 5 percent for marketing.
So, it's the product that dominates.
I would have to say that there— in the car industry you can say that bad advertising generally can't keep a truly great product from succeeding and great advertising cannot cause a really bad product to succeed.
WALTER ISAACSON: If you had to pick, in your industry, the two or three most influential people— I mean, Ford is a giant for simply—
ROBERT A. LUTZ: Well, yeah. Well—
WALTER ISAACSON: For the assembly line, not just for the car.
ROBERT A. LUTZ: You cannot— you cannot discuss giants in the automobile industry in this century without immediately getting to Henry Ford because regardless of whether you look at other companies that went into or produced products that led to mass-motorization of their societies like Fiat in Italy or Volkswagen in Germany—
But the first one to do it was Henry Ford. He was able to take the car and by betting on huge increases in manufacturing capacity and by rationalizing production and using the Adam Smith— the sort of division-of-labor theory was able to get the costs low to the point where everybody could afford the car.
And that's what—