Here we go again, the vehicles are stacking up and after the bravado statement of, “We are weaning ourselves off of incentives and offering value pricing” the summer sell off is underway. General Motors is set to offer six years interest free on most of its 2006 inventory after stating that the sales for this year are down and business is slow. With the up and coming 2007 model year just around the corner we dare not be caught with excess vehicles, is the general concensus. Even existing 2007 models fail to beat the cut, with 3 years interest free being offered.
Last years offering was to offer the unprecedented, employees discount for everyone. By that token, this years sales are off by 30 percent compared with the same time last year. Even with the push to market of the 2007 Tahoe and Surburban with the new engine configuration for better fuel economy, sales are still floundering and market share is dropping at an alarming rate. The combined forces of the Asian counterparts, namely, Toyota Motor Corp. and Honda Motor Corp. who are enjoying record sales leading to a bigger slice of the market. What does that tell us, sales cannot be made without the extortionate incentives and as we all know, is the death of profit for any company.
What is the answer we ask ourselves, well for one, the obsession with large vehicles is not doing GM’s business case much good. In these times of $3.00+ gasoline prices, Joe on the street has had plenty of time to get use to the idea that it’s here to stay and I cannot see the price dropping very much in the very near future. The CAFE standard (Corporate Average Fuel Economy) has been increased in excess of 10 percent for light trucks for the model years 2008-11 to 24 mpg from todays standard of 21.6 mpg. What this means in real terms is, lighter trucks to get the better fuel economy hence maybe a shift in the safety aspect or a down sizing of the vehicle to get a better power to weight ratio for improved milage.
Either way the setting is looking rather bleak. What about Ethanol you may well ask. OK, yes this is good, E85 is made from U.S. grown corn 85 percent ethanol, 15 percent gasoline but wait, where is the infrastructure. Yes, we have approximately 750 filling station from about 170,000 total nationwide. GM that certainly satisfies the alternative fuel problem.
So, back to the point, premium mid/small cars are needed with an emphasis on fit and finish that oozes quality. No sharp edges on tail lights, spend the extra bucks to make the tooling that allows a small radius to finish off the edges on the lamps, just like the Asian and Europeans do. The same goes for the interior treatment, no sharp razor edges. I don’t want to have to tell my children not to stick their fingers around the tail lamps or play in the pockets for fear of sharp edges. Ensure real quality and not perceived quality.
Once that is achieved, then the playing field becomes smaller and then maybe a REAL chance of getting off the incentive bandwagon and making a profit.
What product type do you feel is needed in the portfolio that will make the likes of Ford and GM become more competitive again?