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March 3, 2009 - John Stack

We keep seeing in the media where the big 3 automakers sealed their own doom. They said the automakers kept making cars nobody wanted. They didn't change wiht the times. Their economic model was invalid. Well, I think, maybe not so much. Yes, some of the contracts to unions were quite generous (who else gets 95 percent of their pay when laid off?).

But, what was wrong with the model? It worked for decades! The Big 3 made their money on the big cars and trucks, and with lots of extras. The markup on the options is near criminal. When a base car can be 23,000 and the options run another 10,000, its a good model if people buy it! People kept buying them, and kept buying bigger vehicles with more options. Gas was cheap, so we could all afford the big minivans (yeah, I own a 20mpg Odyssey) and SUVs. Heck, if I knew gas would stay under 2 bucks a gallon, I'd get myself a big old Hummer H3 (they are almost giving them away it seems). The US was prosperous, and their is definitely a 'bigger is better' mentality as well as a real 'keeping up with the Johnson's' value mentality. Problem is, the big 3 hasn't been making the same quality vehicles as the Japanese for a couple decades now. This isn't just a cynic speaking, but check Consumer Reports and those type of magazines. The Hondas, Nissans and Toyotas consistently make better performing, fewer problems vehicles. Still, 'Buy USA' ruled. Even if Nissan and Toyota were spending billions on plants in Tennessee and GM was sending jobs to Canada and Mexico.

The part of the model that blew this all up was something none of us were prepared for. The perfect storm of high gas prices, dropping home sales, and the greatest financial crisis in decades. Who sets up a business plan to deal with that? Even the Toyotas, Nissans and Hondas are seeing huge losses. All three are seeing declines in numbers of vehicles sold in the 40% less than 2008 range. So, it just isn't us. Heck, Toyota seems to have about 10 hybrid models that get 40 plus mpg, yet are still hurting ( a favorite target for those that say the Big 3 can't keep up).

I was just reading an article about declining sales. this wih even giant discounts, reaching about 20 percent of the sticker price. The automakers are saying people won't buy cars even with the big incentives. Maybe they should look at their distribution network. My wife called a Nissan Dealer to see what he could do for a new Xterra. All we could get was the factory rebate. i checked online with another dealer in Plattsburgh. Their MSRP was actually higher than the official factory website! Parking lots full of SUVs sit unbought, yet dealers are still 'playing by the old rules'. If you go to a dealer, they won't offer you their best deal. They  hope you pay sticker price! Why are car dealers this way? I don't go down to the Grand Union and dicker with the cashier on how much I should pay for my Raisin Bran Crunch! 'Hey, I hear invoice on  Captain Crunch is $3.29. The sticker is $4.10. What say I pay $3.89. We both win!'

I did just buy a new vehicle. The salesman said he couldn't work the price, but he threw in new tires. Then he tried to give us an extended warrantee at half price. Then he dropped the price anyway.

I think the incentives and such will work. Just the dealers don't seem to want to let people know what they will really sell a car for. If they continue to lower their prices, often new is cheaper than used, and they can't have that.


I don't know how to fix what ails them, but it isn't just ' the model never worked'




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