Another US automaker is getting out of car business

[afadeev]

First it was Ford:
https://www.bloomberg.com/news/arti...hink-ford-is-about-to-abandon-american-sedans

Now GM is deprecating a large segment of its car portfolio across all brands (in favor of SUVs and cross-overs):
https://jalopnik.com/dead-the-cadillac-ct6-and-a-ton-of-other-gm-cars-1830656192

And yeah, US has witnessed steady decline in car sales as light and heavy trucks have started taking over since mid 00's:
https://www.autonews.com/article/20180408/RETAIL01/180409738/truck-sales-market-march
https://www.statista.com/statistics/199981/us-car-and-truck-sales-since-1951/

What's next - Tesla to become the largest surviving US car-maker (vs. light truck maker) by default ?

 

[grouch]

Pathetic. People still buy cars. Make a better product and people might be interested.

 

[Zeus-cat]

Pathetic. People still buy cars. Make a better product and people might be interested.

Actually, people aren't buying cars as much as they used to. That is why Ford and GM are switching to other vehicles.

 

[Banzai88]

A WSJ report that I read yesterday said that car sales had been steadily declining since the early 00s, with truck and SUV sales increasing. But truck/SUV sales increases by absolute units or dollar amounts haven't been keeping pace with the decrease in car sales. Overall, newly manufactured vehicle sales (of all types) have been on a downward trend for 20 years as people are buying vehicles that last longer!

It also pointed to the fact that the previous administrations had been sending subsidies to the auto manufacturers to continue to make smaller, lighter cars......that no one was buying. Over the last 4 years (spanning the last and the previous administration), those subisdies have reached their sunset dates, and the cars still weren't selling nor were any profitibility improvements made on the part of the manufacturers. The current administration declined to continue the subsidies and mandated that the manufacturers compete on their own, and relaxed a LOT of regulations to make it easier for them to do so. So, the only thing there is to do is discontinue making things that can't compete in the open marketplace.

Build what the consumer wants at the right price point, and it'll sell. Just because you build it doesn't mean anyone wants it. At some point, unless you discontinue what they DO want to try to force the consumer to buy what they DON'T want, you've gotta make hard decisions.

Markets change, happens in every industry. Adapt or perish.

 

[DAllen]

What if you got rid of the dealers? Cars would cost $2000 less across the board. Seriously, there are laws in place that require manufacturers to only sell new cars through a dealer. Why do we still have that? Why can't I just order a car online and have it delivered to my house?

 

[djs]

We have a chrysler plant near where I live that used to make small cars and now makes some sort of Jeep thing (compass?). Every year, it's reported that the sales of the cars they are making was significantly less than planned/expected. I think this is a long time coming for US automakers.

I've been thinking about DAllen's proposal and it would be an interesting test.. eliminate the dealership requirement in a few states and see what happens. However car dealers are a powerful lobby and fight against this.

 

[Steven]

I'll keep my Z4 in the ever growing sea of PU's and SUV's.

 

[BA_Incognito]

Tesla ran into the dealership requirement in a number of states. They have been pushing to have these types of laws eliminated.

From Ars Technica (January 2018)

Tesla is now pressing ahead with lobbying efforts that would allow it to expand its direct dealerships in two more states: Nebraska and Wisconsin. For now, more than 20 states already allow the California automaker to sell its own vehicles, while others have set up a system that at least partially bans manufacturers from direct sales and effectively protects auto dealers. Those states include Texas, Michigan, West Virginia, and Utah, among others. Last year, court rulings and changes in the law in Arizona, Missouri, Indiana, and other states have paved the way for Tesla to sell directly to the public.
​

Full article at https://arstechnica.com/tech-policy...ahead-for-direct-sales-in-nebraska-wisconsin/

 

[afadeev]

What if you got rid of the dealers? Cars would cost $2000 less across the board. Seriously, there are laws in place that require manufacturers to only sell new cars through a dealer. Why do we still have that? Why can't I just order a car online and have it delivered to my house?

State-level requirements to sell cars exclusively through dealers is an example economic protectionism, and prime example of abuse of political office to manipulate free market.
State car dealers are some of the largest lobbying contributors to state politicians, paying up to keep and enhance the absurd vehicle distribution monopoly (via franchise laws):
https://www.newsweek.com/why-cant-you-buy-car-way-buy-computer-453657
https://www.chicagotribune.com/news/ct-xpm-2013-06-20-ct-oped-0620-chapman-20130620-story.html

Having said that, if people preferences are migrating toward light trucks, they will do so via direct or through-dealer channels. I'm not sure the dealer network distorts market demands for types of vehicles folks are buying. Dealers are happily marking up their overhead on all types of vehicles.

Growing or shrinking, cars still represent a 6-7M units/year, or (assuming $25K average sales price) a $150-$175B/year market segment.
https://www.statista.com/topics/1721/us-automotive-industry/

The fact that US automakers can't figure out how to compete in, and are giving up on that entire segment, is just sad.

a

 

[Scott_650]

Eliminating dealerships always comes up as a way to reduce the cost of buying a new vehicle - unfortunately, selling vehicles isn’t like selling consumer products in a department store. The dealerships are the manufacturer’s actual customers - they perform logistics, marketing, and warehousing functions and bear the costs of those functions. Most of the costs would be passed on to the consumer anyway if you eliminated the dealerships. Without the distributors and dealerships competing we’d be just as likely see variety, availability decrease and costs at the consumer level increase - with cost increases more likely because they act as a “buffer” absorbing price fluctuations (because of franchising agreements, purchasing contracts, etc the “invoice” price remains stable as compared to the MSRP). Adding in the longer lead time for production and relative volatility of vehicle sales would mean some days/weeks/months you’d pay a higher price for your FOB vehicle than from a franchised dealer who can negotiate stable prices based on volume.

Yeah, I’m not terribly fond of car dealerships nor the negotiating process - I’ve had a couple car buying experiences that were downright unpleasant and hostile - but with modern access to all the vehicle buying information, dealerships have ended up settling for much smaller profit margins in order to ensure steady sales.

As for GM getting out of the sedan/small car business - they sold more Chevy Equinox models alone this year to date than all of the cars being discontinued COMBINED. For all the resources that GM and Ford have consumed trying to build desirable small cars we all wished for a better outcome than discontinued models and shuttered factories but if they continue to sell cars that either loose money or make very tiny profits the next step is closing it all down. Sad really but continued consolidation seems to be the trend as manufacturing efficiencies increase.

 

[dr wogz]

I remember someone saying, that car manufacturers are soo good at making cars, that they pump out cars at a fenominal rate because they have to. that they are asoo good, that any slow-down affects the whole plant. Hence why each year there is a massive "employee discount" sale. and they need to sell X amount of cars to be profitable..

Also, to toss in a bad word: Unions. Unionized workers also seem to account for higher costs associated with US & Canadian made cars. Yes, Unions have their place, but anyone who insists I get my 3% raise in a time when markets have tanked and when a major recession is upon us is only shooting itself in the foot. And what, with pension accounting for 20% of every dollar earned? There was a reason why only the big US three had serious problems, when other had less of an issue..

Of course, there is also speculation that this impending shut-down by GM (1 here in Canada, 4 in the US) is a bargaining tool, to get concessions from both the governments and the unions to help reduce overall costs..


Does anyone have a Bricklin to sell?!

 

[Scott_650]

Not a fan of union excesses or political activities but labor costs are one of the smaller components of vehicle costs. IIRC government compliance costs are higher - not that I want the road filled with polluting, unsafe vehicles - but folks like to point out the cost of labor (which at least equals money in the pocket of people actually involved in MAKING cars) rather than regulatory costs which is in essence “hidden” taxation.

 

[boatgeek]

I'll see your cost of unions and raise cost of health care. The US system largely places the burden of health care costs on employers*. For GM, that adds about $1200/vehicle. While tax structures are different in other countries, that's a significant added cost to doing business in the US versus countries that have a national health system.

* Yes, the gov't picks up the tab for some people, but most auto factory workers don't have a low enough income to qualify.

 

[Mushtang]

I'll see your cost of unions and raise cost of health care. The US system largely places the burden of health care costs on employers*. For GM, that adds about $1200/vehicle. While tax structures are different in other countries, that's a significant added cost to doing business in the US versus countries that have a national health system.

* Yes, the gov't picks up the tab for some people, but most auto factory workers don't have a low enough income to qualify.

I seriously doubt that. Goods are priced based on what the market will pay, not on what it costs to make them. Clearly, if a product costs more to make than people will pay then that product won't be available very long.

There's no way that the price of the cars go up based on the cost of employee benefits that the manufacturer is burdened with. If anything the profit margin will take a cut, the pay rate the employees get will take a cut, or a mixture of the two.

A great deal of money and time goes into finding the Goldilocks price of a certain car to maximize profit. That's what they'll be priced at regardless. If the company doesn't make enough profit at that price, they'll stop selling them. Removing the costs to the employer of an employee benefit will not lower the price of the car by that amount.

 

[cwbullet]

I am not a big fan of TESLAs. They make sense for city dwellers but for anyone rural, they make zero sense.

I live in rural GA. I travel to WV every year for Thanksgiving. If I owned a TESLA I would have to add miles on to my trip to stay on the interstate and pray that I find a charger every 215 miles (that is the average current distance to recharge of a model 3).

I will stick to gasoline and my hybrid. Since it is not longer made by Ford, I might switch to Toyota.

 

[dr wogz]

I seriously doubt that. Goods are priced based on what the market will pay, not on what it costs to make them. Clearly, if a product costs more to make than people will pay then that product won't be available very long.

There's no way that the price of the cars go up based on the cost of employee benefits that the manufacturer is burdened with. If anything the profit margin will take a cut, the pay rate the employees get will take a cut, or a mixture of the two.

A great deal of money and time goes into finding the Goldilocks price of a certain car to maximize profit. That's what they'll be priced at regardless. If the company doesn't make enough profit at that price, they'll stop selling them. Removing the costs to the employer of an employee benefit will not lower the price of the car by that amount.

Uhm.. No. we've had that conversation, mainly about pharmaceuticals.. Certain drugs that would be a benefit to many cost an arm & a leg. that's what they cost.. Ingredient, the process, the research that went into it.. it all adds up.. Cars are no different. We ant safety, so we test, we want safety, so we add airbags & crumple zones. We want economy, so we develop better engines & streamline bodies. All this research comes form somewhere.. and has a cost, amortised over the number of cars predicted to make in the next year..

Many, if not all companies have to factor in their overhead, and ensure that all costs, including this overhead is paid and the expected profits are maintained.. Salaries, benefits, Christmas partiers,etc.. are all expenses that are factored in to the MSRP price. All companies expect a certain return on their products, to cover all these costs.. if that profit is reduced, the cost will go up, otherwise investors will go somewhere else.. And, if you & I make very similar cars, based on the same parts & labour. But yours is $1200 cheaper, then I must be doing something wrong..

Some things (like a Ferrari) are costed so high to limit demand, and ensure only a select market for the item. All car manuf. have 2 or 3 lines. the idea being is that you start off with eth Ford Fiesta. you then graduate to the Mustang or Taurus, and finally, you move onto to the Lincoln. Each step is a gain in luxury level, and is supposed to reflect your prestige & your level in society.. (Remember, back in the 90's Cadillac took a GM Cavalier, and turned it into a cheap Caddilac..)

 

[Mushtang]

Uhm.. No. we've had that conversation, mainly about pharmaceuticals.. Certain drugs that would be a benefit to many cost an arm & a leg. that's what they cost.. Ingredient, the process, the research that went into it.. it all adds up.. Cars are no different. We ant safety, so we test, we want safety, so we add airbags & crumple zones. We want economy, so we develop better engines & streamline bodies. All this research comes form somewhere.. and has a cost, amortised over the number of cars predicted to make in the next year..

Many, if not all companies have to factor in their overhead, and ensure that all costs, including this overhead is paid and the expected profits are maintained.. Salaries, benefits, Christmas partiers,etc.. are all expenses that are factored in to the MSRP price. All companies expect a certain return on their products, to cover all these costs.. if that profit is reduced, the cost will go up, otherwise investors will go somewhere else.. And, if you & I make very similar cars, based on the same parts & labour. But yours is $1200 cheaper, then I must be doing something wrong..

Some things (like a Ferrari) are costed so high to limit demand, and ensure only a select market for the item. All car manuf. have 2 or 3 lines. the idea being is that you start off with eth Ford Fiesta. you then graduate to the Mustang or Taurus, and finally, you move onto to the Lincoln. Each step is a gain in luxury level, and is supposed to reflect your prestige & your level in society.. (Remember, back in the 90's Cadillac took a GM Cavalier, and turned it into a cheap Caddilac..)

You're saying that things are priced based only on what it takes to create them (parts, labor, R&D, etc.) and companies wouldn't increase those prices by 200% if they thought they could make more money selling fewer of them at a higher price point? If that's what you really believe, then you don't understand the free enterprise system at all.

Prices are based on what the market will bear, not on on what it costs to produce the product. That's economics 101.

 

[djs]

Part of me wonders if this is really a changing industry (and I don't mean "people don't want to buy small cars"). 50-60 years ago, car quality was nowhere what it is today. It was common to replace your car if you could after 5 years, because it wouldn't really last much longer than that. Therefore, the car makers wound up marketing the greatest and latest all the time, because they wanted to follow on that churn.

Now, cars last much longer, and the average length of time that someone owns a car (and related- the average age of cars on the road) is much longer. But the industry is geared up towards driving that churn. This, combined with dealerships having commission based sales people encourages cars to be sold at a higher rate than really needed. But in this case, people aren't really buying it, because necessity (I need a car because mine is dying) compared to desire (I want something newer and nicer) drives the industry in different directions. People with higher disposable income have more of a balance towards "desire".. but they're not desiring little sedans- they want more. I have a feeling that this is also related to the cost of an average car vs. average household income.

What I see is an industry that has to get rid of it's manufacturing volume and scale down to producing less, and also relying less on the churn. The problem is- it's a lot of bleeding there, and no one wants to take the hit in the marketplace until it's too late.

*note- above when I refer to cars in general, i'm referring to personal transport vehicles (cars, vans, trucks, etc)

 

[boatgeek]

I seriously doubt that. Goods are priced based on what the market will pay, not on what it costs to make them. Clearly, if a product costs more to make than people will pay then that product won't be available very long.

There's no way that the price of the cars go up based on the cost of employee benefits that the manufacturer is burdened with. If anything the profit margin will take a cut, the pay rate the employees get will take a cut, or a mixture of the two.

A great deal of money and time goes into finding the Goldilocks price of a certain car to maximize profit. That's what they'll be priced at regardless. If the company doesn't make enough profit at that price, they'll stop selling them. Removing the costs to the employer of an employee benefit will not lower the price of the car by that amount.

Uhm.. No. we've had that conversation, mainly about pharmaceuticals.. Certain drugs that would be a benefit to many cost an arm & a leg. that's what they cost.. Ingredient, the process, the research that went into it.. it all adds up.. Cars are no different. We ant safety, so we test, we want safety, so we add airbags & crumple zones. We want economy, so we develop better engines & streamline bodies. All this research comes form somewhere.. and has a cost, amortised over the number of cars predicted to make in the next year..

Many, if not all companies have to factor in their overhead, and ensure that all costs, including this overhead is paid and the expected profits are maintained.. Salaries, benefits, Christmas partiers,etc.. are all expenses that are factored in to the MSRP price. All companies expect a certain return on their products, to cover all these costs.. if that profit is reduced, the cost will go up, otherwise investors will go somewhere else.. And, if you & I make very similar cars, based on the same parts & labour. But yours is $1200 cheaper, then I must be doing something wrong..

Some things (like a Ferrari) are costed so high to limit demand, and ensure only a select market for the item. All car manuf. have 2 or 3 lines. the idea being is that you start off with eth Ford Fiesta. you then graduate to the Mustang or Taurus, and finally, you move onto to the Lincoln. Each step is a gain in luxury level, and is supposed to reflect your prestige & your level in society.. (Remember, back in the 90's Cadillac took a GM Cavalier, and turned it into a cheap Caddilac..)

I think that both of you are right. Dr. wogz is on the cost side. If the manufacturer can't sell a product at a price that will make a profit, they will probably stop making it, unless they have to for other reasons. One example of that is companies selling x number of electric cars in CA so that they can sell Y number of trucks that make them more money than they lose on the electric cars. Mushtang is right that companies will charge what the market will bear. My point about health care was that if US-built cars have a significant added cost, the price point at which they make a profit is also higher. If that's higher than the market will bear, the company will stop making that car.

On a complete side note since you mentioned pharmaceuticals, there's lots of examples of companies basically buying up all of the production facilities for cheap generics and then jacking the price way beyond reason. Pharma also is quite happy to sell drugs at one price in the US and lower prices in other industrialized countries. Neither of those happen with cars because there isn't the same kind of monopoly power.

 

[boatgeek]

I am not a big fan of TESLAs. They make sense for city dwellers but for anyone rural, they make zero sense.

I live in rural GA. I travel to WV every year for Thanksgiving. If I owned a TESLA I would have to add miles on to my trip to stay on the interstate and pray that I find a charger every 215 miles (that is the average current distance to recharge of a model 3).

I will stick to gasoline and my hybrid. Since it is not longer made by Ford, I might switch to Toyota.

Something like 60% of Americans live in cities, though. We have an electric Leaf for in-town driving (maybe 75% of our total miles in a year) and a gas van for road trips or when we need to carry a crowd. I'd like one of the Chrysler plug in hybrid minivans so that 90% plus of our miles could be electric, but they're still too new and expensive to justify that.

I know a couple of people in a similar situation to yours who have an electric car for cheap everyday driving and rent a gas car for one or two long trips per year. Over the year, they save money. Different strokes, though. I mentioned that idea to a co-worker and he said he'd never go on windsurfing trips if he did that because he couldn't justify to himself the cost of renting a car in addition to the other trip costs.

 

[afadeev]

On a complete side note since you mentioned pharmaceuticals, there's lots of examples of companies basically buying up all of the production facilities for cheap generics and then jacking the price way beyond reason.

Pharma is a very unique business, at least here, in the US. It is the only major industry where the payer and the end-user are almost never the same person. Pharma / healthcare providers sell their goods and negotiate prices to/with insurance companies, and the end-users (you and me) are just a billing unit multiplier.

It is a remarkable industry, not least by the fact that the first thing the service provider does upon meeting a perspective customer is require them to sign a "we will bill you whatever we want, and you will pay up or file for bankruptcy" contractual obligation. Good luck enforcing that practice anywhere else (cars, banking, restaurants, etc).

Come to think of it, I would love it if my industry could get away with that. Oh, just allow me to day-dream about the profit margin expansion that would allow....

I am hesitant to equate Pharma/healthcare with any other industry, including automotive.

Pharma also is quite happy to sell drugs at one price in the US and lower prices in other industrialized countries. Neither of those happen with cars because there isn't the same kind of monopoly power.

That's classical price discrimination (in the good sense of the word), and that practice is prevalent in many industries, including automotive, whenever cross-border arbitrage is not feasible.
That's Econ 102.

Believe it or not, the same car can cost 5x as much in different parts of the world, and the US is usually on the lower end of the scale (courtesy of open competition and low trading barriers/tariffs, at least historically):
https://www.nationmaster.com/countr...prices/New-car/Volkswagen-Golf-1.4-or-similar

https://www.jstor.org/stable/2555925?seq=1#page_scan_tab_contents

I know a couple of people in a similar situation to yours who have an electric car for cheap everyday driving and rent a gas car for one or two long trips per year.

Make that - own an additional electric car because IT IS FREE!

As unbelievable as it sounds, my monthly lease payment on my EV is lower than the price of buying 4 gas tanks worth of dino juice (I normally average one full gas tank worth of driving per week). So my cost of an EV lease is fully offset by not having to buy gas for one of my ICE cars. Sweet.
Yes, Federal and State incentives make this absurdity possible, which is why I took a chance on an EV in the first place (now on 2nd, 3rd likely the next year).

That fact that EVs are environmentally clean, whisper quiet, technologically advanced, and perceived to be cool, is pure gravy!

Did I mention that it's freaking FREE !?!


a

 

[neil_w]

I am not a big fan of TESLAs. They make sense for city dwellers but for anyone rural, they make zero sense.

A quibble: It's Tesla, not TESLA.

The electric car revolution is still in its infancy. Electric cars don't make sense for everyone yet. However, they *do* already make sense for a surprisingly high percentage of drivers, who typically drive a small number of miles per day.

Widespread fast charge infrastructure + long-range batteries are the magical combination. Tesla has helped solve the chicken/egg problem by deploying a very large fast-charge network along with its cars, although there's still a long way to go to get more complete coverage of all areas.

Other car manufacturers have been very slow to react to all this, but Tesla is pushing the industry forward.

Something like 60% of Americans live in cities, though. We have an electric Leaf for in-town driving (maybe 75% of our total miles in a year) and a gas van for road trips or when we need to carry a crowd.

Even for many/most of those who don't live in cities, though, EVs are still fine. I live in the 'burbs and commute 30 miles each way to work every day. My Model 3 has way more range than necessary to handle this.

 

[cwbullet]

Unfortunatly, US Tax Payers supplemented many of these hybrid, electric, and battery powered car purchases. Without GOV funds, most of thes purchases could not happen. I get nervous about these sort of projects. Take the Chevy Volt, Chevy did not make a single dime on these cars and they took a massive amount of GOC investment.

For this reason, electric car manufactures have a mile to go to be usable and affordable for the masses. When they can do it without GOC tax deductions and subsidies, it will be a different story.

 

[Kallahan11]

Unfortunatly, US Tax Payers supplemented many of these hybrid, electric, and battery powered car purchases. Without GOV funds, most of thes purchases could not happen. I get nervous about these sort of projects. Take the Chevy Volt, Chevy did not make a single dime on these cars and they took a massive amount of GOC investment.

For this reason, electric car manufactures have a mile to go to be usable and affordable for the masses. When they can do it without GOC tax deductions and subsidies, it will be a different story.

The U.S. Gov subsidizes a huge number of things, they've done so for traditional cars (the Gov bailouts of the big three), they do so for oil, gas, and coal ect. Nothing really stands on it's own, according to a well cited wikipedia page, global fossil fuel subsidies in 2016 totaled 5.3 Trillion dollars, while the same article show global renewables subsidies at 88 Billion in 2011 (surely gone up quite a bit.)

 

[neil_w]

The U.S. Gov subsidizes a huge number of things, they've done so for traditional cars (the Gov bailouts of the big three), they do so for oil, gas, and coal ect. Nothing really stands on it's own, according to a well cited wikipedia page, global fossil fuel subsidies in 2016 totaled 5.3 Trillion dollars, while the same article show global renewables subsidies at 88 Billion in 2011 (surely gone up quite a bit.)

Indeed. Folks like to ignore the subsidies granted the fossil fuel industry, and also the environmental costs which are almost completely externalized.

It is a useful function of government to jump-start strategically important industries, and the subsidies have no doubt contributed greatly to the progress we've made up until now in the EV market. We are however getting close to the point where they are no longer strictly needed, or perhaps we are past that point already. I personally think it's way too early to pull the plug on them (if you'll pardon the phraseology), but either way the snowball has started rolling down the hill.

 

[James Duffy]

What I see is an industry that has to get rid of it's manufacturing volume and scale down to producing less, and also relying less on the churn...

Boom, you've hit a major issue facing the US auto industry head on. The product being built today is immensely superior to previous offerings throughout the industry, so the pace of replacement is slowed. Additionally, demand has shifted for each and every volume manufacturer to a smaller array of products worldwide. Ford and GM are both preparing for tomorrow by shedding low sales performers such as the Cruze and Focus and investing more heavily in truck, SUV, and CUV products, as well as electric and autonomous products. As they make this shift, they find themselves with an excess of production capacity.

Increased automation in the plants further adds to the challenge, as units go down the assembly line faster, with less human intervention, and fewer defects. This means that the factories that the volume manufacturers retain can produce more units with fewer people, making the overcapacity problems even more acute.

James

 

[djs]

Ford and GM are both preparing for tomorrow by shedding low sales performers such as the Cruze and Focus and investing more heavily in truck, SUV, and CUV products, as well as electric and autonomous products..

Would be interesting to see how they do the market research to determine what would be something profitable for 10 years out from now. Hopefully it's not the same people that came up with that Chevy "Real People" ad campaign, otherwise they're screwed.

 

[Rex R]

see the USA in your chevroet?
Rex

 

[Mushtang]

see the USA in your chevroet?
Rex

That's a very Xmasy post there.

No L.

HAHAHAHAHAHAHAhahahahahaha. I crack myself up.

 

[RocketT.Coyote]

I see a lot of 4wd crew cab pickups on the road lately. These road locomotives usually have no more than the driver aboard most of the time. But in case one has to get a squad of infantry to the front line...