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Archives for August 16, 2013

Good Trends, Bad Trends, Auto Trends

August 16, 2013 by admin 1 Comment

The U.S. auto industry is performing swimmingly, on pace to sell about 16 million cars this year. Its a number some thought we wouldn’t see again for many more years, but after bottoming out in 2009 the industry has now recovered.

The US auto industry is a far different place today compared to 2008, when GM had eight brands, Suzuki was still in the market, and few people gave serious thought to the possibility that Fiat might return to the United States. Five years from now we may find ourselves looking back at many more changes with perhaps Mitsubishi exiting the market, Chinese and Indian brands gaining access to the domestic market, and one or two niche brands springing up to make things interesting.

To that end, let’s take a look at some of the good and bad trends we are seeing today and what impact these auto trends may have on the industry down the line:

Good Auto Trend: Low Cost Cars Are Available

We’ve all heard how the average price of a new car is above $30,000. That price is out of the reach of many Americans, but there are quite a few midsize sedans including the Hyundai Elantra and Mazda6 that can be had for $25,000 or less.

If you are willing to go smaller, well-equipped subcompact cars are retailing for under $17,000, making it possible for first time new car shoppers to get in on the game. Indeed, the $15-20,000 price point will likely be something manufacturers address in the coming years with several new and updated models to attract customers. And the impact? Greater market share for manufacturers that manage to figure out a way of delivering quality cars at low prices. Hint: Mexican labor will play an important role in making this possible.

Chevrolet Corvette -- auto trend

2014 Chevrolet Corvette.

 

Bad Auto Trend: Corvette Price Gouging

The C7 Corvette will be going on sale this fall, with avid enthusiasts jumping in to buy these sports cars. Unfortunately, we are hearing that some dealers will be marking up prices, perhaps by $20,000 or more in a bid to cash in on high demand and low supply.

The impact here may be negligible initially as well-heeled buyers pony up the cash to get in first. But there is also the bad taste that will be left in people’s mouths, something that won’t easily be forgotten the next time they shop for a car. When the next financial downturn comes — and it will come — you can bet that customers will remember the rip-off artists and shop elsewhere.

Note: Several people have disputed my reasoning, responding to a Help a Reporter Out query where I asked people about Corvette pricing. Quite a few people contributed and those opinions are published in a companion piece, “Corvette Mark Up Pricing and Your Say.”

Good Auto Trend: Diesels Are Catching On

Thank the German car manufacturers and America’s pickup truck builders with keeping diesel engines alive. The first group had it especially challenging at times with just a small pool of customers to work with. But BMW, Daimler and Volkswagen have stayed the course.

The result is that other manufacturers have jumped in and customers are taking notice. Sales will begin to pick up as customers see that a diesel can be had for less than a hybrid and still deliver comparable energy savings. Toyota and Nissan may need to jump in especially with their Lexus and Infiniti brands. The impact here is that diesels will help raise fleet fuel averages and reduce America’s dependency on foreign sources of oil. Customers will also discover that today’s diesels are quieter, cleaner and more efficient than previous generation engines, offering long life too.

Volkswagen auto trend

Volkswagen, a leader in diesel engineering.

 

Bad Auto Trend: Automotive Suppliers Are Struggling

The auto industry supply chain depends on numerous companies to supply original equipment manufacturers with everything from seats to mirrors to transmissions. Tier 1 automotive suppliers are the largest and strongest, and typically use Tier 2 and Tier 3 suppliers to feed them with parts. Many of the smaller suppliers were whacked during the recession, companies that rely on Tier 1 suppliers to pay them, not OEMs.

Well, to survive, a number of Tier 2/3 suppliers have cut back. It might be a stamping company or a die-casting supplier that quit investing in itself simply to survive. What you have now are companies that are producing what they can to respond to current demand, but with little room to expand and not enough capital to invest in improvements. The impact here is obvious: smaller suppliers are still struggling with some likely unable to supply the industry with what will be needed as sales continue to rise. Look for bottlenecks to pop up as sales increase, perhaps effecting product availability and delaying new vehicle launches.

Good Auto Trend: Japan is Back

You wrote off Japan, didn’t you? After all, China is the Asian tiger and the Japanese economy is hardly the cat’s meow. Well, not so fast. Prime Minister Shinzo Abe has led a recovery effort that has helped break the more than two decades of economic stagnation that has plagued Japan. Abe devalued the yen which made Japanese-built products more affordable abroad.

For the Japanese automakers, especially ones with a smaller manufacturing presence in North America, the devalued yen helps them stay competitive. The larger companies — Toyota, Nissan and Honda — won’t pull up stakes, but they’ll be able to maintain production at home. This is a good trend for Japan, however it is a bad trend for American car manufacturers, who will find it more difficult to compete on price in a number of markets, such as in Australia. Overall, the impact on consumers isn’t quite clear yet other than the car companies may find more ways to woo you with better products at competitive prices.

auto trend

Other Auto Trends

There are also some shorter term trends that consumers should be mindful of. Most notably, we’re coming to the official end of the model year, although “new” models have been out since late winter. Even so, this can be a good chance to shop for a leftover model at a discounted price, especially any model that has been redesigned. If inventories of the Nissan Versa hatchback, Toyota Corolla, Chevrolet Malibu and Cadillac CTS hold up, there may be an opportunity to negotiate an even stronger deal on these models and others.


See Also — Auto Trends: Kia GT4 Stinger

Photos: Chevrolet Corvette (copyright GM); Volkswagen SportsWagen (copyright VW); Mazda6 (copyright Mazda).

Filed Under: Commentary Tagged With: AUTO TREND, AUTOMOTIVE SUPPLIERS, CHEVROLET CORVETTE, DIESEL ENGINES, JAPAN, SMALL CARS

2014 Corvette Mark Up Pricing and Your Say

August 16, 2013 by admin Leave a Comment

Once in a while I get “called on it,” sometimes by my children or by my wife. Usually, my family reminds me of something that I said long ago and had since forgotten — such as a promised allowance raise or perhaps to fix a leaky faucet.

Here on Auto Trends, our readers are usually quiet, leaving only the occasional comment. At other times, they are quick to respond to something that I have said, especially when invited to do so through my sporadic Help A Reporter Out queries. One query I sent out this past week generated several responses, including a phone call, multiple email messages and a handful of online answers.

2014 Corvette Convertible

2014 Corvette Pricing

That query went under the title, “Chevrolet Corvette Pricing: To Gouge or Not?,” where I asked: “Reports have come in that some Corvette dealers will gouge customers, charging $10,000 or more over sticker price. Question: will this practice come back to bite them or will customers simply pay up?” Along with the question I posted, “Ideally, a Chevrolet dealer authorized to sell the 2014 Corvette would respond, sharing his/her viewpoint. Other auto industry experts are welcome to chime in.”

And chime in they did. From dealers themselves to industry experts as well as a phone call from GM where an executive asked that his company’s opinion be made known. I hadn’t considered contacting GM after discussing the release of the Chevy Camaro with them in 2009. When asked about the heavy price mark ups anticipated for the Camaro, the GM official said that the practice was “discouraged” but that GM had “no control over its dealers.” The response this time was different as the Chevrolet spokesman noted that the MSRP is simply the stated price and that, “dealers can charge whatever they want above or below the sticker price.”

Gouging Is Not Possible

Dale Furtwengler, author of “Pricing for Profit: How to Command Higher Prices for Your Products and Services,” offered an answer that, not surprisingly, aligned closely with the title of his book. Said Furtwengler, “The short version is that price ‘gouging’ isn’t possible because buyers have choices and can choose not to pay seemingly outlandish prices. Those willing to pay, do so of their free will. Those who don’t are also making a choice not to buy.”

He then concluded, “Over the years I’ve seen many buyers bemoan what they perceive as pricing gouging at their grocery stores, gas stations and elsewhere every day, but then they return to these same vendors again and again. While there may be some short term effect, people’s memories and anger wane, and they return to the vendors who meet most of their needs, the primary one being convenience.”

What Customers Want

2014 CorvetteFurtwengler’s position received support from general manager Davis Speight of Starwood Motors in Dallas, a retailer of high-end used cars including the Corvette. According to Davis, he wouldn’t consider the premium prices the 2014 Corvette will likely fetch as price gouging, rather that customers are simply paying a premium for a vehicle that they want. He noted, “Not everyone will be able to pay the premium price, meaning there will be fewer people who are able to have it first. It’s not the smartest financial decision sometimes, because it’s money that you’ll never get back on a mass produced vehicle.”

Davis added, “If money is not an object to the person, then by all means pay up and be the first on your street to have a car that not many others will have. If money is something to consider, you’ll have to place your order behind the people who are willing to pay premium.

“For people that have the money to spend in order to have the first one—money doesn’t matter to them so they’re not worried about it. They’re only considering being the first to have the car they want. The customer knows what to expect and the dealer/client relationship will most likely not be affected because they are aware of this up front. This goes for all makes and models that sell for premium prices. By all means, it’s fair trade for a dealer to charge a premium price for a car.

Determined by Market Forces

And as far as my contention that customers will “bite back” at dealers over higher prices Stan Markuze of PartMyRide.com, an online car classifieds site, sees the pricing as a “supply and demand” issue.

Said Markuze, “The new Corvettes are available in limited supply, and the price will be determined by market forces. The consumers who value the scarce vehicle the most will be willing to pay the most money, and will happily do so. In subsequent years, as the supply of the new Corvettes increases, the markups will decrease and the buyers who are not willing to pay high markups will have a chance to buy the cars at a lower price.”

2012 to 2014 Corvette

Sought after models such as this centennial
2012 Corvette are collector’s items.

 

Journalists Weigh In

A number of journalists added their thoughts including Philippe Daix, founder of TopSpeed.com. Said Daix, “This is not the first, nor is it the last time dealers will put, “market adjustments” on a popular model. Typically, this doesn’t hurt initial sales, as customers will simply pony up the money because they want the car, but it does come back to bite them as the weeks and months pass since its release and the novelty wears off.

“Once the novelty is gone, dealers have to reduce the price back down to MSRP, and if the dealer waits too long, it can lose a number of sales. In a perfect world, the dealer lower the price at the perfect time and it doesn’t lose any sales, but typically there is a time where sales dry up because fringe buyers refuse to pay the $10k to $20k “market adjustment” and units sit on the showroom floor.

“Market adjustments” are simply dealerships using the popularity of a car to jack up their profits, but this markup is a negotiable number. This is purely profit for the dealer and not a required fee. If you live in a lower-income or rural area, you can refuse to pay the price and maybe get the adjustment taken off or reduced. This rings even truer around the end of the month when salespeople, managers and dealerships are all trying to hit their monthly unit bonuses. If you see a 2014 Stingray on the lot with a $10k “market adjustment” on the last day of a month and that dealership is just one vehicle away from a big quota, then you had better believe that the manager/owner will reduce or even eliminate that adjustment to sell the unit — they will make up the profit in bonus and manufacturer kickbacks.”

target 2014 CorvetteAdam Yamada-Hanff of CarNewsCafe.com shared, “It is really only natural for a dealership to charge more for a car when the demand is high and the supply is limited. Most likely with the new Corvette this is what will happen. You see it often and that is the way the market works. It doesn’t make it right or fair but dealerships obviously want to make money.”

Keeping to MSRP

Still, not every authorized dealer will be looking to make a killing when the 2014 Corvette comes out. Brad Sowers, the owner, dealer and general manager of the Jim Butler Autogroup said that his dealership will be “…selling their entire allocation of new 2014 Corvettes at the recommended MSRP within the St. Louis area.” Sowers appears to be more intent on maintaining his dealership’s reputation rather than losing customers, claiming also to have “…outsold all other local Chevrolet dealerships through the first half of 2013.”

Perhaps other dealers should take Sowers’ cue and hold the line on 2014 Corvette pricing although that seems unlikely given the responses we have received.


See Also — Good Trends, Bad Trends, Auto Trends

2014 Corvette Convertible and related photos courtesy of General Motors.

Filed Under: New Models Tagged With: 2014 CORVETTE, Adam Yamada-Hanff, Brad Sowers, Chevrolet, CONSUMER DEMAND, GM, GOUGING, MARK UPS, MARKET FORCES, Philippe Daix, PRICING, PROFIT

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