Congress signs US Car Companies Death Warrant
Talk about a short term stimulus program. Last week we discussed how the Cash for Clunkers program failed in part due to borrowing the sales from future months.
Dealers are ecstatic because their sales are up so much this month after a rough first half of the year. Even GM thought the sales were good enough to warrant hiring back many workers and building an extra amount of cars for the year end.
However, they will be in serious pain when their sales dry up even more in the next few months. Edmunds.com estimates that in any given month 60,000 to 70,000 “clunker-like” deals happen with no government program in place. Thus, the roughly 500,000 sales made under the Cash for Clunkers program represents roughly seven months of sales that were borrowed from the future (people trading in early for this incentive).
Talk about false hope that the government has tricked dealers, and amazingly even GM, into believing.
Government’s Mistake
What may be even worse is that the program merely sped up the inevitable collapse of the US auto manufacturers. It was no secret that the US auto companies were struggling to keep up. I would have voted for the government to let at least one of them fail completely. To have a chance to survive, however, these companies need a quick turnaround plan and a rapid change of products.
No sooner did the government bail out these companies, than did they throw them into a death match without any weapons. It is known that the Asian car companies have the edge in the hybrid game…so why let them in the game? The Cash for Clunkers program turned out to be a massive transition of customers away from domestic auto companies and toward the Asian companies.
Of the top 10 cars traded-in via the program, all were American cars, mainly SUV’s and trucks.
TOP TRADE-INS
- Ford Explorer four-wheel drive
- Ford F-150 Pickup
- Jeep Grand Cherokee
- Jeep Cherokee
- Ford Explorer two-wheel drive
- Dodge Caravan/Grand Caravan two-wheel drive
- Chevrolet Blazer four-wheel drive
- Ford F-150 pickup four-wheel drive
- Chevrolet C15000 pickup two-wheel drive
- Ford Windstar front-wheel drive van
However, these people were not returning them to their original dealers. They were taking them to Honda and Toyota to get their new hybrid.
TOP SELLERS
- Toyota Corolla
- Honda Civic\
- Ford Focus front-wheel drive
- Toyota Camry
- Hyundai Elantra
- Toyota Prius
- Nissan Versa
- Ford Escape front-wheel drive
- Honda Fit
- Honda CR-V four-wheel drive
So, two things happened here. One, in the medium term, the US Auto Manufacturers lost a lot of potential maintenance fees they could have received on those Trade-in cars that are now completely destroyed and off the road. If they had replaced one American car service plan in replace for another, that would be fine.
Unfortunately and secondly, in the longer term, they lost those customers outright as they moved over to Asian cars. Thus, domestic brands not only have to catch up with the Asian products, they need to surpass them in order to get these customers back.
I imagine the trade-in value war is a very interesting pricing game. There must be a competition to purchase back your own cars as well as competitors cars. It all relies on the value of converting a customer and the amount of returning customers they are able to keep. However, the advantages I can think of for purchasing back your own vehicles are that you can offer better warranties on resold cars, you can refurbish and sell them for a premium, or you can use their parts in your service network. Either way, it is important to keep customers and a program that incentivizes customers to choose any brand, or more exactly, the best brand, is not good if you are the weaker brand and product.
I definitely did not see that coming and I’m sure the government did not either. In the end, however, they really screwed over the US car companies. The ratio of Asian cars to US cars on US roads just made a large jump in the wrong direction. Maybe the government see this as a quicker way to get the US car companies to fail and thus a quicker turn around. I doubt it. I would bet they just did not think it through.
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Surely that was obvious? If you’ve just bailed out your top auto manufacturers because they couldn’t compete with the Asian brands, why would you offer a bonus for people to trade their old vehicles without stipulating that the new vehicles must be made by the companies you just bailed out?
It’s either incredibly mind-bogglingly stupid, or the people who really control the U.S government are laughing all the way to the bank (which they also own).