In 2016 while talking with car dealers across the Metroplex, I made the comment that in 2017, I felt business would start to tighten and we would end up working 20 percent harder and would likely end up with 95 percent of what we had achieved in previous years. It had nothing to do with the election or who might win. My prediction was based solely on the fact that 2016 marked the seventh year of expanding new car sales in a row, and history showed that that had never happened before.
And for the past two years we’ve been treated to story after story about how the new car market is slowing down. Yet when the end of the month sales reports come out, we keep finding out that as of now no such thing has happened.
Another fun issue that’s been the darling of the business media lately is how companies like GM and Ford have claimed that President Trump’s steel and aluminum tariffs are creating financial havoc for their companies. Both have claimed their extra cost for commodities at around $1 billion. Meanwhile, other auto manufacturers have stated that they are still studying the outlines of NAFTA 2.0 to figure out how and where to realign parts purchasing and manufacturing so they don’t violate the minor changes to that trade agreement. We continue to read that manufacturers are slashing their costly customer rebates and subvented interest rates on new vehicles to offset higher costs of, apparently, simply staying in business.
The only problem with all of those stories is it seems most are overblown. At least, so far.
Fair vs. Larcenous
Every six months I pull the base prices on all of the major models sold to see how pricing has changed. This past six months should have shown the effects of those steel and aluminum tariffs; yet, except at one auto manufacturer, overall it appears to have been the most stable period for pricing of new cars in years. One example might be the Land Rover Discovery, which over a six-month period had its base price increased by $310 — but Land Rover’s new Velar appears to have had its price rolled back by $300. Most price increases ranged from $100 – $350; but in the case of all Buick and Chrysler badged vehicles, prices seemed to be down by a few thousand across the board.
Be careful how you shop, though: On their websites, some manufacturers are posting their vehicles’ prices net after rebates and calling that figure the “base price.” Meaning that, as the rebate changes from month to month, that base price will fluctuate. And to be fair, the more popular the SUV or crossover, the more likely a larger price increase occurred over the past six months. But that’s typical for most popular vehicles, in years without trade wars or sky-high tariffs.
A similar discussion is how subvented interest rates and leases are quickly becoming a thing of the past as the Fed continues to raise its key rates for money — to which we reply, you’re kidding, of course.
As pointed out in this column earlier this year, JP Morgan Chase sent its cardholders a letter announcing that the interest rate would rise to 13.25 percent — a 5 percent jump — the very next month. But we sure didn’t see a 5 percent increase on the pitiful 0.2 percent interest less fees paid on our savings accounts there. Then again, how many stories do we have to be treated to on the brilliance of the CEOs running America’s largest banks and how they are earning record profits? Often they’re the same CEOs that, just 10 years ago, we were wondering why they weren’t under indictment for mortgage and securities fraud.
If new car dealers could mark up new car loans by 13 percent over their buy rate, (Chase Visa’s 13.25 percent, less .2 percent savings account interest) car dealers across America would be having all-time record years for profits too. Or maybe not; if a new car dealer marked up a car loan by 13 percent, he or she would be the subject of a video indictment leading the nightly news across the country. For a week.
Detroit as a Ray of Hope?
Reading as much news as I do, I get the sense that something is happening in the background that hasn’t fully developed yet. After all, GM sent a letter offering early buyouts to more than a third of its white-collar workforce in North America, 18,000 individuals, meanwhile informing everyone that GM needs to get ahead of the next cyclical downturn in the industry. Ford claims it has an $11 billion restructuring plan, or so execs say. Stories like that should engender a bit of caution in all of us as to what may be coming next.
But there’s also that ray of hope coming out of Detroit. The city that remade the modern world with the automobile and was the Arsenal of Democracy in WWII, supplying bombers, tanks, Jeeps, and war materiel to our troops, again promises to reinvent our society’s mobility.
It’s true. General Motors has announced that its big introduction for 2019 is a new electric bicycle. As if the world didn’t already have enough electric bikes that nobody even knew existed, much less purchased, GM brings us its all new, 2019 … well, actually it doesn’t have a name yet. Here’s the cool part: GM is going to pay ten grand to the lucky person who comes up with the perfect name for this electric bike.
Personally, I’m thinking the name, “Why?” would sum things up nicely. If GM is trying to dump 18,000 workers to slash costs because profits are too hard to come by selling vehicles that list for upwards of $50,000 or more, one wonders how many workers will be left at GM if its bicycle business takes off. Not to put too fine a point on things, but Wilbur and Orville Wright handled their Dayton bicycle business just fine with just the two of them, before they decided there might be a better way to transport people in the future.
Are We Entertained Yet?
Of course, misery loves company in the car business, and so this week Ford, currently in the process of thinking about spending $11 billion dollars to reorganize the company, decided to purchase Spin electric scooters for $40 million.
You know, you can’t make this stuff up. We no longer live in a world that needs sarcasm or writers of exquisite satire; we simply report the news and let the laughs fall where they will.
Of course, nobody knows whether it’s humorous that Ford bought an electric push scooter company with an iPhone app for the bargain basement price of just $40 million, or if it would have been funnier for the company to have purchased Bird electric push scooters with its two billion valuation. Then again, if Ford claims it can’t make reasonable margins on exceptional vehicles, such as its Fusion, how will it turn things around by renting out electric push scooters by the minute?
This ranks right up there with Elon Musk’s sending his personal Tesla Roadster into space with an astronaut mannequin “driving,” then giving us regular updates on where that Tesla is by now. Personally, I didn’t know what the most important news was over the past two weeks — whether NASA could successfully reset the Hubble Telescope and return it to functionality, or the fact that the Tesla with the phony spaceman in it just passed Mars.
These stories are so silly in nature that every time I read one of them I see Russell Crowe in Gladiator, demanding of the coliseum’s crowd, “Are you not entertained?”
When I was 12 in 1964 and skateboards were becoming a thing, the only one for sale in southwest Oklahoma was a $3 kit you assembled. It never was aligned correctly, and it was mostly junk, but I had a great idea to have some fun with it. So I got into my father’s survival duffel bag (Air Force pilots had them for overseas war duties), got his parachute out, cut the lines and tied them around two handles cut from an old broom. That’s right, a parasail for a skateboard that couldn’t go straight.
I tested it out on the country road right next to the Air Force base and its size and immediate speed were breathtaking once the wind caught it.
Right up until I saw the front end of a car molded into the orange and white silk. The car’s driver had stopped, seeing a runaway parachute headed in his direction, but my speed still meant I hit the front of the car.
An old man got out, walked to the front of his vehicle, looked down at me on the road and very quietly said, “Son, I think you might be about to hurt yourself.”
That was it.
However, with a clever name, maybe the Sailboard, create a smartphone app for it, then it might the time to patent that transportation concept.
I’m fairly sure I can sell it to Detroit for a fortune right now.
Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, bestowed by the Anderson School of Business at UCLA, and hosts the top-rated talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. Email: email@example.com