Find Reviews by Make:
Unless you must have a car now, if you’re considering a domestic car or even a U.S.-built car, wait. Many of the proposed legislative measures to “save” the domestic auto industry will cut car prices by thousands of dollars. If you buy a car now, you could pay thousands more than you will later. Automotive News [sub] reports on the most ambitious federal consumer bailout proposal yet. “Retired Chrysler President Hal Sperlich has written a position paper with Don Runkle, former vice chairman of Delphi Corp., calling for a $3,000 government cash incentive on the purchase of a Detroit 3 vehicle.” Chrysler and Delphi execs? You’re kidding, right? Nope. An incentive like this would be unfair in so many ways that it boggles the mind. And yet it’s such a bone-headed proposal that it– or something like it– could happen anyway. And the guys make an excellent point: for GM and Ford to survive (I wrote off Chrysler when Cerberus bought them), auto sales cannot continue at their current level. “In an interview today, Sperlich and Runkle said that without consumer incentives, the Detroit 3 will merely burn through any government loans they receive within a few months. ‘It will be a bridge loan to nowhere unless there are incentives to spur demand,’ Runkle said.” To boost auto sales in the current economy, actual purchase prices are going to have to come down. A lot. And if even one manufacturer cuts prices, the others will have to follow. So, if you don’t want to pay too much for a new car, wait.23 Comments on “Retired Auto Execs: Distort New Car Market or Bailout Bucks are a Bridge to Nowhere...”
Read all comments
So… Honda US has over 110,000 US employees and builds more cars in the US than it does in Japan. It also exports US cars built in Ohio all over the world.
“They” wouldn’t get a freebie because…? Is this a fair country where everyone gets the same deal?
As far as I can tell, the US has the lowest auto prices in the developed world, certainly much lower than Europe or Japan. Also the least profitable auto market, at least for the D3.
Maybe there is a relationship. Maybe companies that sell for the lowest prices actually have difficulty making money.
Maybe, just maybe, the issue isn’t the pricing of D3 product, but rather the quality and long term value of said product.
What will get US consumers to buy cars from the “little 3” is not another price cut…
…but actually making cars that US consumers want to buy.
—
I know, I know, it’s a brilliant idea that only a certifiable genius could think up. At least, that looks to be the case in Detroit and Washington.
Everywhere else, though… and third grader could figure it out.
@vwww12:
Haven’t you heard, the US has now officially turned socialist.
But seriously, the problem is that people don’t buy enough cars for all the big car makers to survive in their current form. And they haven’t done so for ages. The current credit crisis exposes that, but it didn’t cause it. The only reason why this hasn’t been obvious to most people is because the big automakers have countered that trend with massive incentives and cheap financing for everybody. But those measures were merely a (very expensive) credit on the future, because those cars that got sold on the cheap further saturated the market.
No bail-out will ever change those fundamentals of the market. When the economy eventually recovers, overall sales will probably go up, but not anywhere close to where the former Big 3 would need it to be.
110,000 US employees?
Is this like that bogus Toyota claim where they count the folks who make t-shirts with logos for the dealers to give away?
I am generally disturbed by the extent to which international treaties preempt US sovereignty, but in this case I’m hoping that international treaties do preempt this disturbing proposal.
I’m pretty sure that a $3000 cash incentive based on the country of corporate (or LLC in the case of insolvent, better-f-ing-BK if we don’t live in a Kleptocracy Chrysler) registration of the company that produced the car violates NAFTA and a number of other free trade agreements.
Better this than bailout bucks going straight to the automakers and unions. The backbone of our economy is middle-class spending, and the reason the economy continues its tailspin is that nobody is spending money. Even the most credit-worthy among us are stashing cash for the economic winter, not spending it. What’s the best way to solve the problem: give our tax dollars to companies who need it to prop up their businesses, or give it BACK to the people who will then spend it? True, if you’re not in the market for a car you’re basically just helping your fellow American buy an American product. Hey, I’m paying taxes anyway so I’d rather they be used to help people, not corporations.
We’re up Schitz Creek, so something needs to be done. This is the lesser of 2+ evils.
‘“Retired Chrysler President Hal Sperlich has written a position paper with Don Runkle, former vice chairman of Delphi Corp., calling for a $3,000 government cash incentive on the purchase of a Detroit 3 vehicle.” Chrysler and Delphi execs? You’re kidding, right? Nope. ‘
I guess you could say Hal Sperlich is a retired Chrysler president. The truth is he was ousted by none other than Bob Lutz. They apparently were trying for the same position, heir apparent to Iacocca.
Hals history is very interesting, for he originally like Iacocca worked for Ford where he championed a new vehicle concept called the “mini-max”. It was to be a small van capable of easily fitting inside a standard garage. Henry the deuce didn’t like the concept (because Hal was a friend and confidant of Iacocca, so the story goes) and wouldn’t allow the concept to go as far as a prototype.
Then Henry fired Hal, who took a job at Chrysler. A few months later Iacocca joined him at Chrysler and together they gave birth to the minivan. Ironically a first year production Dodge Caravan is displayed at the Henry Ford Museum in Detroit.
After he left Chrylser Hal became CEO of Chris Craft boats. I know it’s easy to dismiss Hal because of Chrysler’s deplorable condition today but he was a part of the company during it’s resurrection from near death, it’s rise to great profitability, and during it’s acquisition of AMC.
As long as the government is giving out direct-to-consumer incentives, why not use this as a way to get more fuel-efficient, less-polluting cars on the road? Offer a rebate based on the differential between the EPA MPG rating of the new car and the trade-in. Maybe this would end up skewing things towards the imports since they tend to have higher MPG ratings across the board, but customers who stick with a domestic will still benefit since there has been some improvement in fuel economy from Detroit. Seems like this would have a shot at stimulating new car demand and getting a lot of aging gas-guzzlers off the road.
indi500fan :
November 10th, 2008 at 9:18 pm
110,000 US employees?
Is this like that bogus Toyota claim where they count the folks who make t-shirts with logos for the dealers to give away?
Yeah, probably. But it’s the same type of logic that says the Detroit 3 have two million employees between them, so what’s good for one is good for the other.
The only way I can imagine this being even maybe done is if the incentive were based on US, or perhaps North American, content. Otherwise, the equal protection clause of the constitution would be violated. Legally, GM’s US subsidiaries are equal before the law to Honda’s US subsidiaries.
But then, WTO issues would be involved as essentially you would have a high tariff on imported vehicles.
Yet another problem is the effect any incentives have on trade-in values. Whack the price of a new Malibu by $3k and the trade in value of a four year old Malibu goes down almost that much. New vehicle values set the curve for used vehicle values. This is one of the underreported stories about the great incentive craze of this past decade. Customers were not in fact realizing much of the “savings” because the value of their trades was reduced. The manufacturers lost money by selling products below cost. The beneficiaries have been used car buyers, who have been subsidized by the mfgs. and new car buyers.
Alternately, the government can increase taxes and give everybody a new Malibu every five years.
Actually, giving the money to consumers to BUY cars is the RIGHT idea.
The problem with that is that cars, unlike houses, are low margin goods that deprecate. Houses are too expensive because of easy credit.
But even with easy credit, GM couldn’t move some of this crap. I saw new Fords trucks in the paper (40% off or a Focus). People don’t want to buy cars right now, and if they want something cheap they can get a used model.
So combining the tax credit for consumers with $25 billion to build something we want to buy — that is not a bad idea. Problem is 1) Detroit has a history of guessing wrong and 2) that takes time, and they don’t have it.
Cars are low margin enough that we don’t actually care about car manufacturing in the US unless the unemployment rate shoots up to 10% or so.
Incentives!? I think they have got it wrong. Here’s how the bailout is going to go down in the Workers republic of the United States:
The US auto manufactures are at disadvantage due to legacy costs (pensions, retiree health care, etc). Whether the automakers file chapter 11, are bailed out with “bridge loans” or given a direct bailouts these costs will continue to kill the US manufacturers.
It was shortsighted of management to commit to these costs in the past, but they did so thinking that their market share would remain constant. Obviously market share has not remained constant. US manufacturers never learned to make a quality small car that turned a profit, and later in the millennium turned the non-truck based market over to foreign manufactures.
If US manufacturers are going to turn around and become competitive these legacy costs are going to need to be removed from their balance sheets. They cannot develop competitive cars given their current cost disadvantage. There is no fair way to do this, but it needs to be done, otherwise these obligations are going the end up the public sector anyway. Here is a potential solution.
1. Pool the legacy costs together in VEBA like funds. This has already been done to some extent.
2. Negotiate reasonable deductibles and benefit reductions to minimize costs.
3. Tax every new car sold in the US as necessary to pay the cost. This tax could be graduated based on the cost of the car, but an average $2,000 tax would generate over $20 billion per year. Use these revenues to pay the funds.
Obviously, this would be unfair to manufacturers that would not directly benefit. This idea has many elements of protectionism. Other countries may even retaliate with similar legislation. So be it. Such a tax is not unreasonable for entry into a market that has provided billions in profits for many manufactures.
Some might argue that this tax would further stifle auto sales, but these costs are already built into the system and their transference should not drastically change the end transaction costs.
The whole plan sounds silly right. Well someone is going to pay the piper sometime.
This isn’t really a bad idea: we’d be stimulating the demand side of the equation, which is a good thing. Done well (ie, by keeping credit standards reasonably strict) and we don’t even overextend consumers. Much.
About the only real damage (and it’d be very real) is to the resale market and future prices (and margins). I’m not sure how to best manage that.
On second thought, maybe this isn’t such a hot idea…
Call me old fashioned, but I would think the government would want people to buy only what they really need – you know, not encourage it’s citizens to mortgage their future for cars, houses, etc. that they really don’t need, nor can really afford.
Then I remember Fannie Mae and Freddie Mac, and realize the government created this mess, and mortgaged this country’s future, purely for immediate gratification.
Brilliant! Get the gov’t to spur demand by putting $3k on the hood. After all, look how well it’s worked for GM and Ford when they’ve done that for themselves.
Why is it so hard for all of us to take a breath and not spend? Or feel some pain? We didn’t get into this mess in a day and we ought not delude ourselves into thinking we can get out of it in a day. It will take time and some pain.
When did it ever become not okay to have a downturn?
Every billion dollars in bail out money comes to a $1000 dollars per car for every 1 million cars sold by the big three. From what I read the bail out starts at 25 billion and goes up from there.
This is FUNNY! Donnie Runkle giving advice like this. Wasn’t he the protege of the infamous Lloyd Reuss and Bob Stempel? Two guys who trashed GM and were fired? Don Runkle of the aluminum Vega engine fiasco? No wonder Delphi is in the tank with talent like him.
Omnifan : This is FUNNY! Donnie Runkle giving advice like this. Wasn’t he the protege of the infamous Lloyd Reuss and Bob Stempel? Two guys who trashed GM and were fired? Don Runkle of the aluminum Vega engine fiasco? No wonder Delphi is in the tank with talent like him.
Is Detroit the world’s most inbred industry? I know little about this, but all these guys seem to have been in the Detroit auto industry for ages, living from one failed project to the next. Are all major US industries like this? Is no one ever disgraced and told to seek employment elsewhere? Is “You’ll never work in this town again!” a thing of the past?
@ psarhjinian;
yeah, the damage to the used markets will be real as well. And that hurts leasing too, rather than outright purchases.
However, fixing the demand side is more important than giving cash to Detroit. There is not a good way to do this, and any way we choose is going to have a lot of negative externalities.
So this guy thinks that the government should kickstart deflation? One of the surest ways to make sure this recession is deep, long, and hurts like hell. Good call.
The truth of the matter is that American car companies are hindered in selling small cars they produce in Asia & Europe AND bringing them back home to sell. Rules & regulations enacted by Congress will not allow GM/Ford to sell their own cars here in the U.S. This needs to be changed. If this were to happen, a bail-out would nat have had to happen. These same cars actually sell in Asia & Europe and would sell here also.