Maranello, we have a problem. Ferrari sales are down – way down – and waiting lists are evaporating. It’s not difficult to lay the blame for the sales meltdown on the “global credit crisis.” But the Scuderia must shoulder a good portion of the blame. Demand for the F430, particularly the Spider, has virtually disappeared following the arrival of the Ferrari California retractable hardtop. As it turns out, most F430 buyers didn’t care so much about the F430’s mid-engined balance, peerless on-track performance or Schumacher-tested suspension. They were buying the F430 because it was the cheapest Ferrari. And now that there is a cheaper one, they’re buying that instead. What we have here, as Strother Martin might say, is failure to understand the customer.
Behind the public façade of three-martini lunches and the endless drone of blabbermouthing focus-group research, automotive-industry marketing is a tough job. The marketing man (or woman) is caught between the Scylla of fickle customer demand and a Charybdis of stubborn engineers, stingy accountants and mercurial management. His product is rarely the best one available. He must increase sales by reaching out to new buyers without infuriating current customers.
Our intrepid marketroid may surmount all of these obstacles, triumph over the previous generation’s reliability record, obscure the unfortunate styling of the wagon variant, and convince the press to report favorably on cupholder count while neglecting to mention the fifty-dollar Korean original-equipment tires, only to see his baby stumble over the final, most critical hurdle: the omnipresent gap between perception and reality.
This is the black magic of the marketing biz, what Orwell called “doublethink,” the Nurburgring of metal-moving. Every brand, every model, every trim level is sold to two buyers: the imaginary buyer and the real one.
The impossibly beautiful and perfect forty-year-old woman who fairly bubbles out of her Christmas-morning negligee upon spotting a red-ribboned new Lexus SUV in her driveway; the square-jawed, Vacheron-Constantin-wearing man’s man who attentively pilots his Nine Eleven down a rainy autobahn; the quartet of twenty-something models without which no Jeep Wrangler would be complete-– imaginary buyers, all of them.
Next to them we find the ephemeral best selves presented on the Internet: the fellow who claims to dominate twenty trackdays a year in his Elise but in reality holds up the hind end of just a few Novice sessions; the people who have ten cars in their “sig” but neglect to mention that nine of them are in the actual possession of distant relatives; the woman who faithfully buys the same car her neighbors do while claiming safety, reliability, or economy as the reasons.
Real buyers are far less interesting. They’re primarily concerned with the cheap shine of perceived prestige, the dimly understood terror of major mechanical difficulty, and the hard graft of discounted pricing.
Many marketers make the classical mistake of falling in love with their own creations. Who would have thought that a relatively unlovely, pudgy-hipped hardtop convertible would displace the disco volante F430 Spider? Only somebody who understands real Ferrari owners.
It’s a mistake made by manufacturers far less romantically inclined than the Scuderia. Stung by criticism of the tepid first-generation “Quaalude,” Honda slaved to make each successive Prelude faster, more involving and more perfectly attuned to the sensibilities of its enthusiasts– only to see the model’s sales slaughtered by the Accord Coupe. The imaginary Prelude buyer was a corner-carver; the real Prelude buyer wanted a two-door Honda with a trunk.
Cadillac, as a brand, is almost indelibly associated with the V-8 engine. But once the 3.6 direct-injection mill arrived in the STS, the Northstar version of the same car became showroom poison. Real Caddy buyers are more than happy to cut the cylinder count and save a buck.
Ford’s marketing corps had distinct customers in mind for the Edge, Flex, and Taurus X; in reality, eighty percent of the buyers for any of the three are also serious buyers for the others.
Every time Toyota allows the Camry to grow bigger, heavier, cheaper, and floatier, they stray further from the tidy perfectionism of the landmark 1992 model – and the car finds its way into more garages as a result.
As the American automotive market goes from bad to worse in 2009, expect more and more manufacturers to demand additional pragmatism from their marketing departments.
From the enthusiast perspective, automakers may soon trim big engines, manual transmissions and thirty-two-millimeter swaybars from new-model programs. Since most people can be bullied into buying a silvery-greyish car with a grayish-black partial-leather interior, automakers’ current (and despicable) lack of real color and interior-material choices will become even more restrictive.
Voltaire warned us that “the best is the enemy of the good.” The reverse is also true. The poseur Ferrari California is the enemy of the poised F430; the clumsy Scion tC was the death of the sublime Celica GT-S; the everyday Accord Coupe drove a stake into the exquisite Prelude’s heart.
Or perhaps that’s wrong. The American car buyer finds himself in the position of Fight Club’s narrator at the movie’s end. We “see” the pistol held to our head by the manufacturers, the dealers, the marketers. But they aren’t really holding the gun. We are. If you want the automakers to keep building the kind of cars you really want, buy one.
@ JB
Great article. Thanks.
Feel like having a crack at where the BMW X6 came from?
Also, perhaps you mean the 1994 Camry with the 1MZ-FE engine rather than the 1992.
To me the biggest failure of current car marketing in terms of understanding the buyer is in setting price.
Cars cost too much.
Here is Toyota, coming out with a brand new model- a slightly elevated station wagon Camry available with AWD. Nice. Then prices it at $35-40k. Stunningly high.
When this overpriced model flops, they will say Americans are not ready for station wagons. They will not blame Toyota marketing price setters.
Similarly the Chrysler Pacifica, at its inception available in only fully-trimmed models approaching 40k. Because we were led to believe it had Mercedes guts. These sat on the lots, until games were quickly played with pricing.
Even as sales were tumbling this year, they still raised prices for the 2009 model year. They are so out of touch, yet the results of these decisions can be seen everyday- just drive down your local Auto Mile.
You make excellent points Jack. Modern marketers seem to be in love with the concept of the imaginary “target customer”. Some companies go to great lengths to make up this imaginary person, right down to giving him/her a name and a rendering.
Read almost anything GM’s various divisional marketing chiefs have to say about their brands and you will see a lot of talk about The Kind of People Who Buy This Crap. Problem is, it mostly doesn’t work.
Toyota was upset that so many Scion buyers don’t fit the target demographic. So what? Speaking of which, why are so many marketers obsessed with selling to the young and hip when that group demographically isn’t where the money is?
I think one of the most interesting cases of this was the Element.
It was marketed as a “Gen-X outdoor vehicle of coolness”, a Jeep Wranger-market with a bit more civilization.
But instead Honda discovered that they made the ultimate mini-work-truck. Contractors and small businessmen bought them, and except for a few hard-core surfer types who appreciated the hose-out floor, Gen-X avoided it like the plague.
But it also show that utility can sometimes triumph over marketing, IF utility sells. Honda keeps making and selling Retirements, they just don’t advertise them hardly at all, as the people who want them as a small, high reliability, reasonably rugged, hoseable work truck just keep buynig em..
Since most people can be bullied into buying a silvery-greyish car with a grayish-black partial-leather interior, automakers’ current (and despicable) lack of real color and interior-material choices will become even more restrictive.
Reading that makes me happy that I’m not an American car buyer, and when I wanted a diesel-powered 3-door hatchback with a 6-speed manual and orange seats, BMW was happy to make me one for a reasonable price.
Well, if cars are priced too high, its because they are too well built.
Maybe we head back to the standards of the 80s as far as interiors and engines go or something, but otherwise I don’t see a huge drop in prices coming.
When you can pick up a new car for 10g or so and head up from there, I don’t think the cars as a whole are overpriced. The companies expectations of what people will buy and afford may well be to high, and people’s expectation of what they ought to be able afford may be overpriced, but it does seem like there is a new car for any person who can hold down a job.
why are so many marketers obsessed with selling to the young and hip when that group demographically isn’t where the money is?
Because a young person has a lot of years of car buying ahead of them. A young brand loyalist generates more long-run profits over time than an older one. In an industry with marketing costs and production overhead as high as they are in the automotive industry, capturing and keeping customers is the name of the game.
Also, youth marketing can have broad appeal, whereas marketing to the oldsters is almost sure to alienate most of the audience. Older people may want a young man’s car, but young people don’t want an old man’s car. There’s not much reason to target the older audience, when they don’t need to be targeted and when targeting them creates more losses than gains.
Is that a head-on picture of the new Ferrari? Jeez, it looks like an Italian Ford Thunderbird.
If this is what Maranello is pushing onto the motoring world then they deserve a few years in the automotive penalty box.
I find it funny in the former SUV-craze, that everybody was lusting for the same type of car. Rappes, gangsters and the police officers were all alike, they all wanted to be seen driving a big fat Tahoe or Hummer.
And young people doesn’t want a Scion or Honda Element, they all want a BMW 3-series, just exactly like mid-management. If successful people drive Bimmers, then all the people that want to achieve successfulness will want to do the same.
Toyota would have had a bigger success with Scion if they had promoted the brand as an anti-car, for the anti-establishment. Like Volkswagen did in the 60’s in the US, or Renault did in Europe with the Renault 4. Young people doesn’t like to be targeted because they are poor, they want to be targeted for their potential, for what they will achieve.
Toyota would have had a bigger success with Scion if they had promoted the brand as an anti-car, for the anti-establishment.
Much of the idea behind Scion was to experiment with the use of Japanese domestic market sales techniques in the US. No haggling, with an emphasis on customization. They targeted youth not just for the usual reasons, but also because they figured that younger people would be more responsive to that marketing concept.
It isn’t a failure, in that the ambitions for it were never that high. Much of it is a market research project and it is not a full-fledged brand. It also supports and doesn’t detract from the core brands of the business.
I’m not sure what Toyota has learned from it, but I would presume that Scion has taught them that American consumer habits are quite different from those of the Japanese and that not everything translates here. If they want the brand to stand on its own, it will need tweaking.
But in any case, if the brand can capture younger buyers who it may have otherwise lost and put them onto a lifetime path of Toyota and Lexus ownership, then it may have succeeded. It’s a bit early to say.
I think what we have here, as the writer suggested, is a brand buyer who wants to own a Ferrari. They really do not care what the car is, they must want one and want to be seen in one.
I do not see why Ferrari should be surprised. It happens all the time with Mercedes and BMW. Just look at the number of stripped down 3 series and C class cars on the road and you get my point. If they made a US$20K car, some buyers would buy it no matter how small or impractical is was because of the name and the bragging rights sometimes associated with that brand.
The only thing Ferrari can hope for is that they make up for it in volume on the lower priced cars. Does that sound familiar?
Let’s not forget the effects of “anti-marketing.”
“What’s that!?” you ask?
Well, think of it this way. The baby boomers grew up in stationwagons with faux wood side paneling. They’ve been buying SUVs because they’re not stationwagons. The grandchildren of baby boomers grew up in minivans. They’ve been buying SUVs to haul their kids around because they’re not minivans. And there’s a generation of us who grew up riding around in the back seats of Oldsmobile Cutlasses, Mercury Cougars and Buick Regals. We shunned those cars for their replacements …. The BMWs, Volvos, Saabs, Lexii, Mercedes-Benzs, ad Infinitae, starting back in the 1980s.
While it’s true that a lot of buyers of those brands are enthusiasts, but most aren’t. My neighbors drive these sorts of cars and don’t care a gnat’s whisker about performance.
In the process, GM and Ford lost a generation of buyers. The unions had nothing to do with that. Management, did.
A neat marketing trick I always liked, was the campaign for the european Ford Capri of the 60’s and 70’s. “The Car You always promised yourself”. And it was sold with every Ford engine, from a tiny 1.3 liter to a 3.0. Thus there was one for everybody, in every price range. And it had the same sex appeal.
http://en.wikipedia.org/wiki/Ford_Capri
My point is, young poor people doesn’t want to be recognized as poor. They want the same status symbols as everybody else. They want the same instant gratification of driving a Ford Mustang as the guy next door. They’d rather buy a used BMW for the same amount of money as a new Chevy Aveo. Just because you don’t have the same breathing space doesn’t mean you don’t need to breathe.
Well, if cars are priced too high, its because they are too well built.…
A good point. While cars are getting too costly, they also are built to a much higher level of precision and far better quality parts are used. They are much safer, cleaner, and most importantly, last far longer. For those who trade in 3 to 5 years, that last fact is lost on them, but for those who keep their cars well past 100k, today’s cars are actually a value, especially if bought used.
New car have too much crap on them, both mandated by regulation, and as built by the manufacturer in an attempt to capture some fantasy customer. The average new car buyer is not the average car owner. I can easily buy a new car, but I’ve decided they are not anywhere close to being worth the money, so I only buy used now.
I’m longing for the old days of wagons with wood grain, button tufted interiors, etc. If the Mercury Colony Park came back, I’d be all over it.
Instead the market will get another antiseptic CUV that looks like every other one on the road. I’ll just keep what I have, thank you.
First rule of Auto Marketing: Do No Believe You Own BS.”
Second rule of Auto Marketing: “Luxury Sells Better Than Sport.”
The hardcore models are only there to increase the appeal of the brand. Majority of sales comes from models equipped with all amenities.
Ferrari needs to bring in new blood into the company. Pride can always be justified by the racing pedigree; arrogance, is inexcusable.
Cars cost too much.
They don’t. Compare the MSRP of a 1989 Corolla to that of a 2009 Corolla, and you’ll find that the sticker price hasn’t even kept up with inflation.
The 2009 model will also be better equipped, more reliable and safer than its older counterpart. You are getting a better product today than you were before, while paying less for it in relative terms.
Cars aren’t that expensive for what you get. What is amiss is that Americans don’t earn enough to pay for all of the bells and whistles that they want in their lives without going into hock to pay for them. You need to either earn more or else lower your expectations, you can’t have both.
I heard from a friend that BMW takes an interesting approach, saying that their customers are stupid and don’t know what they want so BMW will decide for them. Granted the stereotypes of the ultimate leasing machine customer, the approach seems to be working pretty well for them.
I don’t know what happened at Scion. They reversed their vehicle strategy with their latest xB and xD vehicles. I always believed that the real appeal of the xB was being JDM, the style of vehicle popular in Japan but was always disregarded for the US Consumer. The whole brand 180ed on Toyota, as their average customer age (still being the lowest in the industry) was a lot higher than expected. A lot of older customers were attracted to the practicality, fuel economy, and pricetag of the vehicles.
Then if you look what Scion did now, they went in the completely opposite direction. Their cars got bigger, heavier, and more expensive and you can see what happened to their sales. I don’t understand why the strategy changed, other than the departure of Jim Farley. Scion still puts out awesome mix CDs but their new cars are just not the same. I guess they got greedy and wanted to sell more expensive vehicles.
I will give credit to Scion for being a very difficult brand to manage. I’ve read some really interesting articles on the marketers that work at that brand. One strategy was to stop tv advertising, because their target customer had a Tivo and wouldn’t be watching commercials in the first place (a bit ironic if these are supposed to be young people with small budgets). Scion also wanted to skip out on MySpace, as it was too mainstream and they wanted to jump to the next big thing in online social networking.
Their quality surveys have also given contradictory results. I read article on the initial quality of the first generation of scion vehicles, and they scored pretty low. A company explanation was that their customers had exceedingly high expectations of their vehicles relative to the pricetag. I know they used really cheap plastics, as I noticed how easily my friend’s xB got scratched. At the same time, I don’t think either of us cared since we knew it was a cheap car.
So obviously, they had to do something but I think their current solution was too Americanized. They lost that style edge, and just answered with bulk. I wonder how they plan to “recover” but how much attention are they going to get with the current downturn?
I think that AE86 rwd coupe (tC replacement?) would have been excellent for the brand, but Toyota didn’t plan on selling it in the US. Last I recall, they were just going to sell the Subaru version here. That doesn’t make any sense at all though, as a moderator of an American AE86 forum was actually flown out and interviewed in Japan to help develop the vehicle.
Cars cost too much.
They don’t. Compare the MSRP of a 1989 Corolla to that of a 2009 Corolla, and you’ll find that the sticker price hasn’t even kept up with inflation.
Cars cost too much and I can prove it. Drive past dealer lots- cars are piling up on top of each other.
It doesn’t matter how well built the car is or what a car cost in 1989. It doesn’t matter what you want it to cost or I want it to or what the car companies want it to cost.
Because none of the above determines the price. The market determines the price. The price is the point at which a ready seller makes a deal with a ready buyer. Cars are priced higher than a person wants to or is able to buy it for. Else why on earth do they advertise pretend red tag sales?
Once cars are reduced to the price the market bears, the pile-up on dealer lots will diminish.
Of course, the car companies may close shop before then. Which is what they get for pricing a car higher than market.
Cars cost too much and I can prove it. Drive past dealer lots- cars are piling up on top of each other.
Again, that proves that Americans don’t have enough money or credit. Their consumption goals are too high relative to their means, which makes them highly dependent upon credit. No credit, no sales.
If car companies cut their prices while offering the same products, they would go out of business because they can’t turn a profit with substantially lower prices. That would require either downgrading the product or selling less of it. Since consumers don’t wish to live beneath their means, the alternative is to solve the problem through credit.
The successful car companies are waiting (wisely) for credit to flow again. When the economy comes back, their sales will rebound.
It makes no sense at all for them to aim for higher sales volumes by eliminating their long-term profitability. GM has been doing that for years, and we can see how well that has (not) worked for them.
Amazing how a car with Lexus SC styling with a Ferrari badge can suddenly sell well. If they had really made it significantly cheaper then it would not have the status of a Ferrari, but for now it is much like the Porsche Cayenne – an overpriced poseur vehicle.
The initial Scions may have scored lower in satisfaction surveys because nobody was fooled by the badge. Ask any Scion buyer why they purchased the car and I bet “because it’s a Toyota” is in the top 5 reasons. The reality is that Scions are affordable Toyotas with more style than the average, dour Toyota. The current crop is just reacting to what the older demographic wanted. A bit more room and a bit more power.
Luxury cars are more symbols of conspicuous consumption than mere transportation. People don’t actually want sporting performance, given the choice they’d everyday comfort with the pretense of sport, as long as it had the proper badge on the hood.
Pete Moran:
No, he means the 1992 Camry with its breathtaking styling over the old 1988-91 (I’m serious; they haven’t made a better looking Camry than the 1992-94). They lagged (and still do) behind the Accord in styling and performance, but that WAS the best looking Camry.
Saw a Jeep Patriot on the highway this morning and was surprised how much it looks like the Grand Cherokee. Intitially I was pissed that Jeep styling was being used to butch up a FWD station wagon. However, on further reflection, I think it’s an attractive looking station wagon that can probably do a good job of hauling stuff. I bet the young woman driving it couldn’t care less that this “Jeep” wasn’t capable of going off-road at Moab.
No, he means the 1992 Camry with its breathtaking styling over the old 1988-91 (I’m serious; they haven’t made a better looking Camry than the 1992-94). They lagged (and still do) behind the Accord in styling and performance, but that WAS the best looking Camry.
It’s a good car. Just last weekend, my buddy and I did the valve cover gaskets on his ’92 Camry V6 5-Speed with 210K miles. I took it for a drive and it’s still a very nice car to drive; I’d be happy to own it. I’ve driven newer Camrys and there’s no way I’d own those.
Nicholas Weaver- Don’t forget the Element’s appeal to flea marketers and crafters. Plus you can put a bed in it and camp
I’m sure Ferrari doesn’t make a lot of money selling cars. They make all their money licensing T-shirts, toy cars and logo junk. Are the T-shirt sales down?
The 1992 Camry is too bubble/rounded looking. I like the 1987 and 1997 better. I think a 1997-2001 base model Camry is one of the best cars ever sold in the US.
Cars cost way too much new, lucky they’re made so well now an up to 5 year old car at 50% off a new one is just as good as a new car.
That being said, somebody has to buy new cars eventually. The prices do have to come down. We need more cars like the $9990 Nissan Versa.
A $10 per hour job isn’t enough for a $22K car.
A lot of people have $10 per hour jobs
The “real” Honda Prelude buyer was greatly outnumbered by the “real” CR-V buyer.
The Patriot has to at least maintain a credible claim to off road ability.
Just like even a ho-hum Ferrari must maintain some track capabilities. Otherwise you are just whoring the brand for short term sales gain at the expense of long term creditability.
The other factor in this is how the 2nd 3rd..etc users of the vehicles use them. The use and perception of vehicles evolves over the product life cycle.
The W123 Mercedes started its marketing life in the US as a prestigious sedan that said “I have arrived”. The movie LA Story even had a gag where they track the prices of used MBs.
It is now the Whip of choice for the Bio diesel Frugal Hippie crowd.
The VW Beetle started its life aa prestige & social welfare project of the Nazis, only to evolve into the 1st successful contrarian product to what was on offer from the US Domestics in the 60s and 70s.
Jeep SUVs start their life as luxury chariots and typically are only used for their off road prowless after they have gotten cheap. Only someone crazy, rich or some combination thereof takes their new(er) SUV off-road. It takes a good 5-10 years for used models to become cheap enough that you want to abuse them on the weekend.
Reading all the comments was really insightful.
I can’t help but thinking about the Jaguar “Gorgeous” campaign. They think everyone who buys their vehicle is a gorgeous, thin, tea-drinking top-hat wearing, fox-hunting aristocrat.
Laughable.
And yes, the shine of badge prestige is cheap. Especially since there’s no “prestige” to it. Late model BMWs and Lexuses are so friking cheap, 18 yo pizza delivery people living in apartments on the wrong side of town can buy them.
We’re living in a post-industrial world. The cars themselves are all well-built. Luxury automakers find it harder and harder to justify the 10-20k price premium, so they sell their cars all based on image. Image is what people buy when they buy these cars. The quality/performance of a Ferrari isn’t important. When a 60k GT-R can outperform a Ferrari, the only thing left for the elite to distinguish themselves from the rest is image. Everything else loses meaning. They want to make a statement about who they are in society. The prancing horse/bull becomes an extension of themselves.
It’s not the performance/quality of luxury cars anymore. That might’ve been true in the 30s-60s. It’s all about image and context.
Cars cost too much and I can prove it. Drive past dealer lots- cars are piling up on top of each other.
Again, that proves that Americans don’t have enough money or credit.
Exactly. Cars cost too much. People cannot or will not buy them. They cost too much for the market.
If companies cannot sell the product at their wishing price point they must lower the price or go out of business. It’s their choice of what they do.
Companies raised their prices over the last few years even while consumers went flat or their consumable income went south. Companies blamed it on rising raw material costs or weak dollar. Those excuses are gone. Why don’t they lower their price then?
The red tag sales today are weaker than they were three years ago, even while the prices are higher. Gone are the bonus dollars to those holding GM credit cards. Rebates of $500 or $1000 are a joke- companies were giving rebates in those amounts 20+ years ago when cars cost $10,000 less.
There is not a chance of profitability until the overproduction and oversupply diminishes. And there is not a chance of that diminishing until current inventory diminishes. Two years from now there will still be leftover 08s and 09s and 10s rusting away in the lots while gov bails them out, thereby keeping prices artificially high.
The market will disappear not because consumers are unwilling, but because car companies are unrealistic.
The successful car companies are waiting (wisely) for credit to flow again. When the economy comes back, their sales will rebound.
It makes no sense at all for them to aim for higher sales volumes by eliminating their long-term profitability. GM has been doing that for years, and we can see how well that has (not) worked for them.
Of course- they will sell no cars at the mega-wishing price points but they will make it up in volume.
That will keep them in business for another 5 years until the economy rebounds?
Maybe that’s their plan, but of course they will be out of business long before. And of course their plans are nonsense without their marketing department setting prices commensurate with the market.
People cannot or will not buy them.
That is incorrect. Some people will not buy them, but others can and will pay the freight.
The issue is not with pricing, it is with capacity matching the current market. The “market” is defined as those who are willing and able to pay prices that generate profits, not as everyone with a pulse who would buy a car if only it cost 20 bucks.
The current inventory is matched to yesterday’s demand, so there is currently a glut. The successful companies will temporarily cut production, while simultaneously attacking their rivals to gain conquest customers.
It makes no sense for a producer to create inventories in quantities that will create losses. That’s how Porsche stays in business — it determines what revenues it needs to be profitable, then produces vehicles that can hit those price points.
Cars are not a commodity good. They are branded goods that have tiered pricing, and which can be modified to alter the level of margin that they can produce.
GM has followed your dumping formula. It obviously doesn’t work. “Making it up with volume” is a punchline to a longstanding joke about GM’s failings, not a viable strategy.
re: “…why are so many marketers obsessed with selling to the young and hip when that group demographically isn’t where the money is?”
John Horner / January 3rd, 2009 at 10:59 am
because their collective taste sets and/or affects important trends. and their influence impacts a much wider audience that simply themselves.
@ the first comment:
The X6 is not nearly as idiotic as most believe it to be. Many Cayenne Turbos are sold every year (whether the number is high relatively or absolutely, I don’t know), and the market exists. The vehicle not only affirms the brand but builds upon it.
Anyway, that was a very excellent article.
I think philipwitak has it right, the go-getter marketers want to sell to the people they imagine themselves to be.
Maybe car guys should reconsider being “smart” and only buying used.
“Cars cost too much.
They don’t. Compare the MSRP of a 1989 Corolla to that of a 2009 Corolla, and you’ll find that the sticker price hasn’t even kept up with inflation.”
In 1991 the car I have worked on ever since cost around 25k for base model. It is now 35 k. (less discounts of course). That is +2% year on year.
For that you get auto instead of manual, another 40+kW of power, 6 speaker CD system instead of 2 speaker radio/cassette, semi automatic climate control (with AC) instead of a heater, airbags, electric windows, seats, mirrors, and pedals, IRS instead of beam axle, better emissions (we have to pay for the cats even if you don’t like them) DOHC engine with a broadband manifold and variable timing,instead of a SOHC) 16 inch alloys instead of 14 inch steels, oh and an IRS instead of a beam axle. Crash performance ride, handling and noise, pretty much everything with the exception of real world fuel consumption and weight, are also much better.
OK, I’m not claiming that we are exactly on Moore’s law speed of progress, but that is a long list of expensive things to jam into a car, which was already a mature product, for pretty much the same price after inflation.
My next car is one of a breed I don’t think will last much longer.
@pch101…..
I loved your little dose of reality on the state of the American consumer, “What is amiss is that Americans don’t earn enough to pay for all the bells and whistles that they want in their lives without going into hock to pay for them. You need to either earn MORE or else LOWER your expectations, you can’t have both”.
It will be posted on the frig for my son who has graduated from college and hasn’t found a job yet…….isn’t looking too hard either.
Following on from what Pch101 has written about the price of cars, we should not forget the car sales/use cycle is a bit like an ecosystem.
Manufacturers that understand cars need to be treated like a valuable “asset” and exit price maintained as best as possible, are the ones, in general, that are in better shape.
Maintaining the exit price is done mostly by maintaining the entry price.
(They also creep models from one class to another, vis 2008 Yaris is bigger than the 1994 Corolla, 2008 BMW 3-series is bigger than the 1990s 5-series, while the 1-series is “slipped in” underneath the 3-series).
I am reminded of one of Scott Adam’s “Dilbert” books, in which he deconstructs all of the marketing mumbo-jumbo into one simple principle: If you charge less for your product, more people will buy it.
I am also reminded of a graph I once saw in a trade journal. In inflation-adjusted dollars, the “price” of a new car translated into payments of $200/month…and that figure remained almost constant for nearly 50 years.
However, what has changed since the 1950s is the time of those payments. Car loans in the Eisenhower years were 2 years or 3 years. By the late-1990s, typical car loans were 5 years (or even more).
Finally, many people abandoned purchasing altogether, and made lease payments of $200/month (inflation-adjusted).
Of course, with stagnant real wages since the 1970s and with our country having maxed out its borrowing ability, this trend is going to have to change.
Re: Price of Cars, Buying Used
Buying a car new and driving it for a long time comes close to buying used in terms of price. It is less risky, you get what you want for options – and perhaps more important, you don’t get what you don’t want. There is a hidden risk cost to buying used. Some brands like BMW don’t recommend proper fluid change intervals, so few used BMW’s are properly maintained.
Buying a used car makes sense for models that depreciate quickly. However better brands do not depreciate quickly, therefore you don’t save that much money when you consider new tires, new fluids, new brakes etc.
My new cars also track straight. The also track straight after ten years because I have a policy of not hitting curbs. A used car that has been bumped around a bit will never drive the same. Sure you can get an alignment, but does the technician bother to put the top of the steering wheel at 12 o’clock? Etc.
You get what you pay for. As the saying goes, there is no free lunch. But go ahead keep buying used, because you support the price of my car in ten years time by making all used cars dearer.
Psy101 sayeth: The issue is not with pricing, it is with capacity matching the current market. The “market” is defined as those who are willing and able to pay prices that generate profits
No, there is absolutely nothing in the market that guarantees anyone a profit. In fact, the seller doesn’t get to name the price of a product, especially if it is overproduced and non-unique. The market doesn’t care about profit, about what the rate of inflation is relative to previous prices- none of it. The market is brutally honest. In the face of such oversupply the market is determined by the buyers. A buyer is not someone who would LIKE to buy, if only… A buyer is someone who DOES buy.
The current inventory is matched to yesterday’s demand, so there is currently a glut. The successful companies will temporarily cut production, while simultaneously attacking their rivals to gain conquest customers.
The best (only?) way they have right now of attacking their rivals is to lower their effective price to the point the market is buying again.
Cars are not a commodity good. They are branded goods that have tiered pricing, and which can be modified to alter the level of margin that they can produce.
Sure, there is a year’s supply of cars on the lots. GM can simply stop making cars for a year. Then maybe supply will meet demand and the price will reach equilibrium with the market. But I don’t think GM will go with your proposed solution of stopping production for a year, since all its fixed costs are still in play- including pay to the now non-workers.
GM has followed your dumping formula. It obviously doesn’t work.
No, GM has not done this at all. They have placed red tags that give the same ‘discounts’ anyone could have negotiated. They have modest rebates on their cars, absolute numbers of which haven’t changed in decades even while the MSRP of cars have soared. GM has raised the prices of cars with (and within) every model year, although wages are flat. Three years ago GM was offering double-balance credit to its credit card holders; nothing since. We have only seen fake, not real, discounts. GM thinks there is a pricepoint below which it need not go to sell cars. The market thinketh differently.
The key point is that in even offering these pretend discounts, GM has recognized that price is a factor in the market, and so has pretended to lower its effective price. Just like twenty years ago when GM was touting that it had learned its lessons and was now offering superior quality. Because it is much easier to claim better quality and to claim lower prices than to actually deliver them.
It doesn’t matter what you or I wish. The market speaketh.
@ ronin
I can see where you heading, but in general branded good manufacturers are termed “price setters” rather than “price takers”.
Obviously, you can negotiate somewhat, every now and then.
Ferrari might have their manufacturing capacity running at 70% idle, but you won’t see them halve their prices to use up that capacity.
GM/Chrysler have behaved as price takers far too often via many varied means.
The smart car companies will reduce fixed costs as much as possible and wait it out. GM/Chrysler can’t cut fixed costs much because they are astronomical, plus they have MASSIVE interest bills to pay.
$40,000 Silverados discounted by $30,000 via Red Tag (or whatever) was to generate cash flow to feed the fix costs for Dec/Jan. They might even have been making a loss at those numbers.
Pete, I agree that trucks & SUVs have had definite reductions. But all along I’ve been talking about cars, and cars haven’t.
I also agree that fixed costs won’t allow a prolonged production reduction- I was responding to another suggestion that put forth that proposition.
In the old days the car companies have had the luxury of setting the price. Consumers across the table blinked and ante-ed up. Today there are no consumers across the table, and we now see the result of setting prices too high. No sales.
Smart car companies will see the market and adjust. If they can’t adjust, they go out of business. This is what happens in business. The car companies saw it coming, but they still priced their cars too high, and made a bet that DC would bail them out. Their bet was correct.
Now that taxpayers have allowed them to stay in business without selling cars, the gov has changed the market. The gov has preserved car prices that are too high to afford by bailout out the companies. The companies don’t care, since they don’t need to sell cars anymore to fund operations. All they have to do is whine. The first time was the hardest part. Now it becomes easy. Infinite bailouts with car prices artificically high to the point that no one buys them, immense overcapacity, but the car companies no longer care. Their product is not cars, it is whining.
As a final aside: 30 years ago pickups cost less than cars comparably equipped.
Someone else can trace the road whereby pickups (and by extension SUVs) became much more pricey than cars. Sure, a few hundred dollars of extra sheet metal and such, but $12,000 more?
Nevertheless, SUVs and pickups became the cash cow with huge margins. Was it only a couple years ago that an incredibly out of touch Chevy announced the new Silverado as its savior?
The big discounts we are seeing today in trucks & SUVs only reflect the huge margin the carmakers enjoyed. A welcome reduction to reality, but SUVs and pickups are STILL priced too high.
So bigger discounts were announced, indeed reducing some of the inventory in recent months. So the car companies actually recognize that their products are priced too high, and that price reduction works. So then they rolled back some of those discounts.
The car companies saw it coming, but they still priced their cars too high, and made a bet that DC would bail them out.
Not quite. The domestics made the same mistake that they have been making for years, by building vehicles that were not good enough to justify the prices that they were asking.
If the goal is to keep losing money and to destroy their brands, then yes, they should follow your advice and cut their prices.
If they wish to be profitable, they will make cars that are good enough to justify a given price point, and then match production to conform to a reasonable sales target based upon that price. If the vehicle can’t be made for a profit within those parameters, then it shouldn’t be built at all.
Yours is a recipe for brand destruction. If a car was like a bushel of corn, you’d have a point. The purpose of branding is to ensure that a car maker doesn’t end up on the same playing field as the farmer with his corn.
Enthusiasts sit in a precarious place. Contrary to the way things are often portrayed on the Internet, we DO buy the cars we love. We often buy more of them, too. At the age of 27, I’ve owned eleven cars.
The problem is, that still puts us in the tiny minority of new car purchases. We get what we want much of the time because the people who work for the auto industry think like us. They make the mistakes you described. By assuming that the average car buyer has even done a minute of research, they drive themselves to produce better cars. By the mistaken assumption that even a statistically significant minority of drivers know the first thing about performance driving, they occasionally build excellent performance cars.
I would just like to point out that I drive a glow-in-the-dark blue station wagon.
I haven’t heard anyone call the Prelude a Quaalude in years. Thank you, you made my day by dredging that aphorism up.
Great article.
“Someone else can trace the road whereby pickups (and by extension SUVs) became much more pricey than cars. Sure, a few hundred dollars of extra sheet metal and such, but $12,000 more?”
Look at the interior of any US pickup built in the last few years. Compare it with the interior of, say, a 72 Chevy or Ford pickup. You’ll see a lot of the difference right there. When you’re selling vehicles such as Tahoes and Suburbans in the luxury price classes, the knobs and switches and such tend to be pretty nice, and these are then also found in the Chevy work trucks. Then there are the other niceties like drive-by-wire throttles and such. They help squeeze another half-mile per gallon of gas, and probably add measurably to engine life, but I doubt that they’re as cheap to make as the old mechanical throttle linkages.
Any family man figures this out fast.
Want a 5 series because the kids have grown legs ? Mechanically identical to the 3 series, but a foot or so longer and wider….$15,000 more with same engine and equipment than the equal 3.
Honda Pilot or MDX ? That tighter suspension is going to cost you-thicker sway bars are very, very expensive to engineer.
You can go cheap, but that minivan is declasse’, and they make sure there is no sports package, as if stiffening the suspension just a notch is forbidden. Minivan owners also don’t have backs that might like sports seats. (We are not going to the Nurembring, just want to be firm on the highway and in the ramps).
I buy the cars and keep them ten years, so I might not be the ideal subject here. I fully expect my bought new 2003 BMW to last 300k to justify the price. I’m probably not the X6 buyer.
It’s all a scam. Offer the car cheaply, make sure that if you can find the stripper that the car is so lacking, and then pile on options. Want a heated seat ? That $5 heating coil is packaged only with leather and satnav for $2500. Want a better radio in your VW (and too stupid to go aftermarket)…it comes with a sunroof for $1200. Want a lumbar adjustment in your sports seat ? OK, but only with the premium package for $2500-not included with the already extra money sport package or seats.
Everyone does this. Take the one option many will pay for and package it with a bunch you don’t care about, just like Cable TV packages. Make them pay for the bunch.
Since few people in the US will “special order” a car, we all get stuck with a lot of crap we didn’t really want and a higher price.
The marketers, of course, know that. I had to special order a car because I didn’t want a sun roof, and overcome the objections of the dealer who wanted to sell me “on the lot”.
Ferrari sales are down but they just reported on my local news that they just opened a new dealership in Tampa. I live about 45 minutes south of this new dealership.
The odd part of the story is that this is a stand alone Ferrari dealership. And only the second stand alone Ferrari dealership in the U.S. If you go there they can’t down sell you into a Jag or Volkswagen. They sold 8 cars in the first week of operation. The owner stated they expect to do well in Tampa due to old money being available?
Stung by criticism of the tepid first-generation “Quaalude,” Honda slaved to make each successive Prelude faster, more involving and more perfectly attuned to the sensibilities of its enthusiasts– only to see the model’s sales slaughtered by the Accord Coupe. The imaginary Prelude buyer was a corner-carver; the real Prelude buyer wanted a two-door Honda with a trunk.
Great article. I have been reading the site for some time, but didn’t register until today.
The above really resonates with me as I grew up driving Hondas, starting with a ’91 Integra and moving to a ’93 Prelude SRV (that’s VTEC to you folks south of the border). The one point I would make is that the Prelude wasn’t killed by the Accord coupe alone, but microniched by Accords & Integras together.
My Prelude was my companion for many years and many kilometers. It was a true Goldilocks car in that the die hard corner-carvers described bought manic Integras while the sedan folks in denial bought Accord coupes, but the Prelude armed with the H22A VTEC engine occupied a sweet spot somewhere in the middle, composed but capable.
When I eventually went to replace my car I bought an ’06 RSX Type S. Someone else on this site once compared driving the RSX to dating someone in their early twenties, and I agree. It is loads of fun but manic – this car wants to party all the time. The alternative was sitting on the porch watching the world go by in the more “mature” Accord coupe described. The dark horse in the equation was the first gen TSX that was a wonderful compromise that really deserved another 30-40 hp.
Faced with these options I chose the porridge that can be too hot on days when I really just want to settle in for the commute over porridge that was too cold, and porridge that was just too slow.
I can accept that at the end of the day, it probably didn’t make sense for Honda to cluster this segment with 3 offerings, but I for one enjoyed being in the mythical middle that enjoyed, and bought the Prelude.
Or perhaps that’s wrong. The American car buyer finds himself in the position of Fight Club’s narrator at the movie’s end. We “see” the pistol held to our head by the manufacturers, the dealers, the marketers. But they aren’t really holding the gun. We are. If you want the automakers to keep building the kind of cars you really want, buy one.
While this is true to an extent, another reason why sport niche cars are disappearing is that the average car has become far more capable. >200hp engines are the norm, as are large low-prof tires, and all of a sudden the family car is adequate for the average hoon out for a romp. Good enough becomes the enemy of perfect.
davey49 : I’m sure Ferrari doesn’t make a lot of money selling cars. They make all their money licensing T-shirts, toy cars and logo junk. Are the T-shirt sales down?
This is a critical point that the article and comments largely missed. Ferrari is a highly unusual automaker. They are more of a luxury lifestyle retailer: more like Gucci or Hermes, less like Ford. Most of their profits come from branded non-automotive goods, both upscale (computers, watches, pens) and down scale (t-shirts and caps).
I kind of see Ronin’s point, but I feel that the reasons why have only been touched on the periphery. Do new cars need 18 inch wheels? Do they need integrated radio/CD systems that have to add cost and prevents an owner from easily upgrading them? Do new cars need integrated nav systems that are immediately obsolete and non-upgradable? Does every new car need leather “seating surfaces” and automatic climate control? How about the useless fog lights on many models?
I believe that these “needs” artificially drive up the price of new cars while they needlessly add to the development costs of the new models.
And another bug-a-boo with regards to new cars: Does each new redesign really need to be bigger and heavier?
That also adds uneeded costs as the extra weight requires upgrades in areas such as engines, brakes, suspensions, etc.
The Accord-Prelude connection especially rings out to me. I had a Gen5 98 Prelude, and what a machine it was, but instead, Honda killed it for the bloated Accord Coupe. Every review of an Accord Coupe I have read in a certain magazine mentions the Prelude in connection.
Now they have screwed up my TSX thanks to Marketing Research – ARGH!!
davey49 : I’m sure Ferrari doesn’t make a lot of money selling cars. They make all their money licensing T-shirts, toy cars and logo junk. Are the T-shirt sales down?
This is a critical point that the article and comments largely missed. Ferrari is a highly unusual automaker. They are more of a luxury lifestyle retailer: more like Gucci or Hermes, less like Ford. Most of their profits come from branded non-automotive goods, both upscale (computers, watches, pens) and down scale (t-shirts and caps).
Hah! Sounds like Harley Davidson. A T-shirt seller with a motorcycle division.
If you’d like to see an example of the pricing on non-automobile Ferrari products, take a stroll through the dealership inside of Wynn hotel, Las Vegas, NV.
A standard umbrella with the Ferrari logo was $250, when I visited in 2006. They also charged $10 just to browse the showroom floor.
I’m as guilty as the Marketing “gurus” who fall for the hype. I adore the Scuderia, the Porsche GT cars 9GT2, GT3, GT3RS), the Z06, Honda “Type R” cars as well as the crotch rocket motorbikes. I *AM* aware and I’ve stated LONG AGO that the public dreams Sports Cars but they truly desire GTs (i.e., Grand Touring cars) and there is a world of difference – as most here will already know.
Few will tolerate the noise and harsh ride of a “proper” sports car. And that’s okay. GTs are, well, very damned nice. Since 99.9% don’t open track or autocross and those that do spend 99% of their time driving on public roads the Grand Touring car is just about perfect. Except for the headbangers such as myself and the few other likeminded people I communicate with on obscure websites and EVO magazine subscribers.
One would have thought that the Marketing types would know this… they did and they do. Well, some of the persons involved did and do. I was not marketing – I was P/T NVH R&D but I’m an unapologetic, gamebred sports car & sports bike enthusiast. You know, the kinda guy that’s NEEDED in the Auto Industry. Not to build my personal IMSA GTP car with ‘plates but to UNDERSTAND interpret the AUTO OWNER’s requirements and engineer/develop them. The engineers I worked with DID NOT KNOW. The Marketing Dept was as much full of attractive flakes as anything else – except persons who lived to be around, engineer & develop better vehicles. And upper management? I wouldn’t follow them to the restroom.
Great article, btw.
Us enthusiasts are an exceedingly tiny minority and I understand why we’re neglected for high volume sales. I just don’t like it.
Ferrari is unique. Exceedingly so. However, they should know that cars such as the F430 is “relatively new” to them and that Ferrari made it’s mark with GT cars unlike Porsche who did so with it’s lightweight track stars. Perhaps Ferrari is heading in the proper direction: several front-engined, high performance GTs and the “entry” mid-engined sports car with a track special version of same added every now and then. Like Porsche is doing now.
Honda: Oh how the “mighty” have neglected me… I adore my Acura ITR; would love to have something else in a similar vein from Honda. C’mon, Honda… I think I’ll go test drive a Civic Si today…