THE WRONG ROAD.
Monday, April 3, 2023 at 12:15PM By Peter M. DeLorenzo
Detroit. Now that the average price of a new car is approaching $50,000 – yes, you read that correctly – I have to ask the obvious question to the auto manufacturers and their dealers: What the hell is everyone thinking?
Do you actually think this is sustainable going forward? I know the manufacturers and their dealers discovered the proverbial pot ‘o gold at the end of the rainbow during the pandemic era through to the present day. Meaning, they figured out they could completely walk away from the old – and costly – floor-planning model supporting huge parking lots of inventory in favor of switching the consumer mindset from “walk around the lot and see what you like” to “you better give us a deposit now, or there’s somebody right behind you on the list.” In other words, take it or leave it.
Talk about a target-rich environment. Price dickering became a thing of the past, as consumers were forced to pay sticker, at least. And the unfortunate “first-on-the-block” types willingly paid huge amounts of ca$h-ola over sticker. And in case you’re wondering, it’s still going on.
Walk through any dealer showroom today and the answer to your questions will probably play out like this:
Consumer: “I’m interested in that BelchFire SuperSUV. What can you tell me about it? I don’t see any on your lot and you have just the one really loaded one on your showroom floor.”
Salesperson: “Yes, you have excellent taste. It’s a very desirable and popular vehicle. We have a few coming in, so we can put you on the list. We don’t really know when they’ll arrive and we have many people already on the list.”
C: “You don’t know when one will arrive?”
S: “We get a few in every week, but since there are seventeen people ahead of you on the list, I really I can’t say when you can expect one to get here. Maybe in a couple of months. We know the colors and equipment of the ones coming in, so, if you would like to give us a $2500 deposit today, we can get you on the list…”
C: “What about the one on the showroom floor?”
S: “Well, yes, that’s a beautiful one. It’s completely loaded and stickers for $65,000.”
C: “Well, it’s the color I want, so…”
S: “I need to tell you that the sticker is $65,000, but we add a ‘market adjustment’ to the sticker price.”
C: “Really? How much additional is the ‘market adjustment’?”
S: “It’s $7500.”
C: “You’re joking, right?”
S: “No, we’re definitely not. Would you like to take that one?”
C: “Uh, no, definitely not. And now I’m not interested in getting on one of your lists, either.”
But this is just one dimension to the current pricing environment in the automobile business. The other is the pure and simple fact that cars and trucks are just getting too damn expensive for a large swath of the consumer buying public. The average car payment has gone from around $500/month just three years ago to approaching $700/month today. And, as I’m sure you’ve seen the articles in mainstream publications, $1,000/month payments are becoming far too common.
Ding, ding, ding! What part of “not sustainable” do the players in this business not understand? Do they think consumers will keep showing up in showrooms cheerfully muttering, “Thank you sir, may have another?”
I’ll answer that one for you: How about no?
I have praised the Ford Motor Company repeatedly for the pricing and product strategy of the Maverick pickup truck in past issues of AE. Forget about the F-150 Lightning and the Mach-E because the Maverick is, in my estimation, the most desirable – and significant – of all of Ford’s offerings. The base price on the current Maverick XL is $22,595. I priced a top-line Maverick Lariat with the hybrid powertrain as I was writing my column, and I came up with a price – with options including the Luxury package – of $35,855.
To me, that’s an acceptable price point, but, as you might imagine, it’s like finding a ghost in the marketplace. Ford completely misjudged the potential of the Maverick. In other words, building them is an issue – as with everything Ford tries to bring to market – and finding them at dealers is even more of an issue.
So, there’s that. Add the coming “EV Transition” to the current sales environment and you can multiply the badness exponentially. Yes, I’ve been assured that “affordable” EVs are on the way, but the manufacturers’ idea of “affordable” and the reality for consumers are too vastly different concepts.
Show me a manufacturer who creates a well-equipped and desirable EV with at least a 200-mile range – with the emphasis on well-equipped and desirable inside and out – for less than $30,000, all-in, and I’ll show you a winning combination in the marketplace.
The rest of the chatter is just so much noise.
My point is that this industry is headed down the wrong road. I don’t care what the demographics/wealth statistics say, people are going to stop showing up in showrooms en masse, and one day the manufacturers are going to wake-up and say, “What happened?” Let me correct that, it will be more like “Waaaahhh happened?”
And the sound of moaning, groaning, whining and "Woe is me" will be deafening.
And that’s the High-Octane Truth for this week.
Editor's Note: You can access previous issues of AE by clicking on "Next 1 Entries" below. - WG