Automotive News [sub] reports that the propeller people are pushing prices upwards, by an average of .7 percent. “The automaker said the move was driven by ongoing economical changes in the marketplace and ‘will ensure revenue generation for the company’s U.S. operations and help to protect the quality of business.'” Uh, how’s that again? (And what’s an “economical change” anyway?) “The rise comes despite the fact that the brand, like the rest of the industry, saw its U.S. new-vehicle sales slip by just over 12% to 231,053 units in the first 11 months of 2008 vs. a year ago.” So, in a declining market, BMW is raising its prices? In theory. In practice, not even the Germans can change the law of supply and demand to hoik prices on vehicles that aren’t selling.
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Daimler had announced same a few days ago. See WAS.
At least ONE thing they can cooperate on: Raising prices.
Who cares what the MSRP is on the Ultimate Lease Machine anyway?
Reminds me of all the “Sale” signs I see in stores. They have the before-sale price, that seems to have little relation to anything in the real world, and then the sale price.
Although I know it is just a gimmick, I always am impressed by how much the price has been discounted. I’ll always pay more for something on sale than I’ll pay for the same item when not on sale.
Could that be what is behind this tiny raise in price? Psychology?
Must be because of the big increases in raw materials. Oh wait….
It’s actually a smart move by all manufacturers in the long-run to raise transaction price (price net of incentives). Most economics experts believe the long-run price elasticity for automobiles to be very inelastic. That is, if the entire industry would raise pricing across all available vehicles in a segment, then the percentage drop in vehicle demand will be less than the percentage increase in price.
http://www.mackinac.org/article.aspx?ID=1247
The problem would be if some automakers in certain segments hold stubborn to a very low transaction price (as evident by cars in North America priced far less than most other developed nations). You can see in the above link that an individual automaker has a lot to gain/lose in the short term since the short-term elasticity is very high for an individual automaker.
The other significant problem is that automakers often raise pricing and raise incentives at the same time (or almost the same time), which can really do lots of damage to the company. Yes, there is a bit of a psychological influence as described by Tesla D… except the extreme externality of this tactic is to create very poor residual value.
So, if we see all North American prices go up a reasonable amount, you’ll have low sales in the short-term (sales are already brutally low). But in the long-run, all companies will make more money assuming they’re still in business.
Now there will be even more ridiculous depreciation on cars like the pictured M6 Convertible. Is BMW trying to outdo AMG in a race to see how fast their cars can lose 50% of their value?
Price setting is an exercise in optimization. As you raise prices, you make more money on each car but sell fewer. It is impossible ex ante to say whether raising prices is good or bad without knowing a whole constellation of other facts. There is nobody on earth that has more incentive to find the peak of that particular curve than BMW themselves.
To further the goal of solidifying TTACisms as proper memes, I will add “just sayin’.”
BMW sales sales are way down. So much for the economists and their pricing strategy.
Their solution for increasing sales in a glut? Raise prices. That will somehow induce people to come in and reduce the bloated (and still bloating) inventory.
Wait, these are the customers who are a) losing their jobs, b) taking pay cuts, c) losing boni, d) losing benefits, e) losing credit ratings, f) losing equity in their houses, g) fearful about their futures.
Time to fire the clowns and move product. Or just sit back in your Bavarian Mad King Ludwig castle, smoke cigars, and pretend you can dictate the market.
The only ones who seem to have a clue is Honda. THey are battening down the hatches severely, and offering discounts even on their flagship models.
The price increase isn’t meant for 2009, so much as it is to raise the floor for the price increases of 2010, 2011 or whenever the car market recovers.
That doesn’t necessarily mean that the transaction prices are going to increase. The leases will be subsidized as always, and there may be some factory-to-dealer incentives to indirectly compensate those buyers who are smart enough to haggle aggressively.
You know what’s not news? The Germans are arrogant.
Assuming this means they’ll scale back production in tandem, it makes sense: BMW has a loyal customer base, and they consistently show that price is not a determining factor to get the Bavarian brand over a Lexus, Infiniti, Audi, Caddy, etc.
Appeal to your core buyer, milk them for all they are worth. Easy money in difficult times.
If it were true that the loyal customer base is actually buying these cars that would be different.
But if over half of the US sales are actually leases (as they are), lease rates up, qualifications down, and now the maker decides to essentially raise cap cost. Pow, fewer leases qualify.
This is a big bet from Bavaria, and so far there is nothing in the job outlook to say that people will eat this increase. To the contrary.
Most economics experts believe the long-run price elasticity for automobiles to be very inelastic. That is, if the entire industry would raise pricing across all available vehicles in a segment, then the percentage drop in vehicle demand will be less than the percentage increase in price.
http://www.mackinac.org/article.aspx?ID=1247
This was posted in 1997, before credit was so loose people were buying cars on a whim. So, maybe their elasticity numbers would apply if we went back to 1997 or before numbers.
Raising prices? I just bought a brand new 2008 loaded M3 from my local BMW dealer at $500.00 below published invoice PLUS I got 0.9% financing for 60 months from BMW Financial Services. The vehicle had a manufactured date of 12/2007 and was bought by me in December 2008. They can raise the prices all they want but the market is what it is.