Cheap cars

America’s automakers learn a sad lesson about how to sell cheap cars

Image from article titled U.S. Auto Makers Learn Dark Lesson in Selling Inexpensive Cars

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In the old days, the business strategy of American automakers was, as CEO Alfred Sloan said, “a car for every purse and use. “The idea was that automakers wouldn’t do much about cheap cars for young buyers, but those buyers would stick with the brand and grow up to buy cars that automakers make a lot of money on. This has not been the strategy of car manufacturers for a few years, but it looks like the chip shortage has really pushed automakers in the opposite direction, which is bad news for those of us interested in cheap cars.

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That’s because if you dig into GM’s first quarter results, went out this morning, you might guess a pretty clear message. If you’ve listened to GM CEO Mary Barra on her investor call, you might hear an even clearer one.

Of Reuters:

Through the haze of production cutbacks and supply chain issues, some automakers are finding they can achieve better results without stockpiling vehicles or increasing sales volumes with low-priced, low-margin models. .

“We will never go back to the level of stocks we held before the pandemic because we have learned that we can be much more efficient,” Barra told analysts on a conference call Wednesday, although she added that the Future supplies would be “a little higher” than current levels to meet customer demand.

“It’s better for everyone,” she said. “It’s better for the automaker, it’s better for the dealership.”

Barra added that the No. 1 U.S. automaker is focused on maximizing production of high-demand vehicles like the full-size Chevrolet Silverado pickup and GMC Yukon, Chevy Suburban and Cadillac Escalade SUVs.

Reducing vehicle inventories allowed GM to increase the average transaction price of new vehicles by 9% overall, including 10% for pickup trucks and more than 20% for large SUVs, CFO said. Paul Jacobson.

That’s right: the chip shortage has given GM some information, one of the most important being, Why the hell do we bother selling the things that aren’t very profitable and not the other things that are ?, the kind of powerful insight no business can ever ignore. Well, it’s not like the Big Three couldn’t see it before, but they mostly just kept doing things the old fashioned way because, uh, tradition or something like that.

Auto executives, especially at the Detroit Three, have been talking for years about better tailoring production and inventory to customer demand, moving away from endless series of discounts and end-of-year sales. year. The pressure to keep factories in operation and the tradition of aiming for higher sales volumes have kept the price out of reach.

If you want to see what a successful automaker looks like that isn’t explicitly looking for ‘a car for every purse and purpose’, take a look at one of the luxury brands, but especially one like Volvo. , who in recent times has explicitly not gone for the volume and has done very well for himself.

And that too, to be clear, is bad, if we were hoping to have good affordable American cars in the foreseeable future, assuming that a $ 25,000 Tesla might never materialize, at least on our shores. Because, if GM has finally realized that it doesn’t have to sell the Spark or any of its cheap SUVs, it could be the ball game.

It wouldn’t be the end of affordable cars here – wake me up when Toyota ditch the Corolla or Kia ditch the Soul – but it would still be the depressing highlight of a trend that started years ago.

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