Hammer Time: Resale Suicide
Back in 2008 I saw some of the weirdest optioned vehicles to have ever gone through any auto auction. Vehicles that were given power everything including cruise, ABS and traction control… but manual windows. Long wheel base minivans that offered captain’s chairs and premium sound… but no rear air. Even midsized sedans that had all the features a family would want. Except side airbags which the rental car company decided would cost too much to repair in the event of an accident. Fast forward two years later. Used car inventories are at their lowest point in 35 years and used car prices are up over a thousand bucks from last year. Have the manufacturers finally found some pearls of wisdom? Or are there still too many penny wise, pound foolish practices running amuck in the industry. Well???
Consider the following realities…
1) The ‘no air’ car… still coming to a sweltering metropolis near you.
What do Atlanta, Las Vegas, Dallas, Miami, Bombay, and Rio De Janeiro all have in common? That’s right. They will all one day have a Waffle House, god willing. And along with that Waffle House, there will be at least two or three cars in the parking lot with towels on top of their seats. But will all those cars be 10+ year old beaters. Or maybe not?
In the futuristic year that is 2010 some folks believe that new cars shouldn’t have cold air.
Even in a city that is so sweltering that water condenses on your body as you move from place to place, you can still buy a true stripper that doesn’t blow. Someone’s gotta say it.
I understand the marketing gimmick behind it. The ‘lowest priced car’. The ‘buy one get one free’ car (a.k.a. any Kia will do.) The ‘look at this low price while we hide the bogus fees in the small print’ car. For all the halo effects these circus freaks have at the dealerships, they are terrible endorsements for a car’s qualities once they’re on the road.
2) The ‘20-something’ car
Who wants a Honda CR-Z? Apparently this is now the talk of the TTAC town. But it is a great question. In a world where Boomers want to retire (someday), and most 20-something’s struggle to even have a career. Automakers seem content to offer an amazing number of low-riding coupes with dashboards that appear to be part cell phone, and part pokemon.
I don’t see how most of these cars have even a remote chance of making money. 80+% of these car will never see 50,000 units. Most have development costs that run well into the hundreds of millions. I love most of these cars. But we are now in a world where everyone can make a sport four door car that is every bit as fun to drive.The market just isn’t there.
3) The ‘Premium’ Car
There is this decades old myth in the industry that only ‘premium’ cars can offer that extra push of profitability. Cars are ‘loaded’ in the hopes that the customer is equally loaded. But there is a nasty catch to it all.
Most customers in the entry-level areas of the market are extremely price conscious. Yes, you can still find that mark who will spend $20k on a Focus. But for every one of them, you also have at least two to three folks looking to spend only $11k to $13k. What happens when the car in question no longer supports that price threshold?
It craters. The Dodge Neon was an excellent seller with a long model run… and then it cut off the bottom end of it’s market and it died. The Saturn S-Series managed to hum along at 200k to 300k vehicles a year for over a decade… and then the Ion was priced out of the low end and it (thankfully) died.
These days the Cruze and the Fiesta are trying to hit what seems to be the sweet spot of the premium market. What are they offering the lower end? Nothing. At least nothing except an Aveo. Meanwhile the Nissan Versa has become a market leader and can hit the $12k customer as well as the $18k customer. Other manufacturers like Toyota do the same exact thing by offering multiple models with the same underlying platform. Long story short, I don’t see the Cruze or Fiesta posting the production numbers that will be needed to make them profitable.
More by Steven Lang
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I agree with all but part 3. For the most part it actually costs the manufacturer little more to build a "premium" small car than a stripper, so the per vehicle profit on premium cars is much higher - and at a certain point more volume stops driving down production costs and starts driving up administrative costs. Strippers can also undermine the initial resale value by giving the car a cheap beater image.
With all due respect to Stephen whose opinion I value I disagree with him about the value of a premium small car. In February 2005 I bought a new Focus ST. It is loaded with every option including leather/suede heated seats, the Sony sound system with the boomer in the trunk and sunroof. It came with 4 wheel disc brakes with ABS, and traction control. It is a sweet little ride with the Mazda 2.3. It handles like a dream and goes like shnell..It is also fairly stealthy and is overlooked by our friends in blue. Because nobody sees value in a premium small car we got it for a streal. Our dealer had 5 of them and said pick the color and I will make you a deal. Five years later, with 115,000 miles it still brings a smile to our faces and our 15 year old son dreams of the day it will be his. By the way it has a 5 speed stick which is the only way you could get them. Way to go Ford for making the perfect car for me. When we pass it on to our son we would be looking at the Fusion Sport (if Ford puts a stick in it) or maybe a Mustang.