To Trim Prices, Automakers Dropping Content

Newsletter Stay up to date on car reviews, buying guides, articles and more When it comes to selling cars, one tried and true method to move inventory is this: drop the price. In the past, manufacturers often did so without de-contenting, since margins were usually strong enough to absorb a hit on selling price.

Faced with higher production costs and stronger competition from global brands, that’s not always the case today. Instead, manufacturers are still slashing prices, only now they’re quietly trimming content from cars as well.

USA Today uses the slow-moving Nissan Murano Cross Cabriolet as an example. In 2011, the base price started at $46,390, but Nissan cut the base price to $44,540 for the 2012 model year.

What’s missing? The navigation system, which is now available as an option, priced at $1,850. In other words, 2012 Murano Cross Cabriolet, identically equipped, costs the same as it did in 2011.

The same thing happened with the Chevrolet Volt for 2012. GM cut the price by $1,000, but deleted the navigation system as a standard item. Adding it back in costs $1,995, or $995 more than the $1,000 saved. In other words, an apples-to-apples Chevy Volt is more expensive in 2012 than it was in 2011.

Sometimes manufacturers cut prices for bragging right alone. In 2011, the cheapest Dodge Journey equipped with a third row seat cost $23,240, which was $145 more than the next-least-expensive three row crossover, the Kia Sorento.

Dodge wanted to offer the least expensive three-row crossover for 2012, so they trimmed features to get to a $19,990 starting point. If you want amenities like roof rails or sunscreen glass, you need to buy the $2,000 SE Quick Order package, and all Journey option packages have gone up in price for 2012.

The bottom line is this: if you’ve had your eye on a particular make and model and suddenly find it thousands cheaper than it was last year, there’s probably a reason for that. Before signing on the dotted line, make sure you know exactly what you’re getting for your money.

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Automakers push back on proposed 62mpg fleet average

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Automakers Learn That Closing Brands Costs Customers

What happens when automakers like GM shutter brands such as Pontiac and Saturn, or when Ford closes Mercury? In a perfect world, customers loyal to these brands would stay with the parent: Saturn and Pontiac customers would shop for their next car from Chevrolet, while Mercury owners would heard down to their local Ford dealerships.

As automakers are finding out, more often than not former customers are leaving the family entirely. The Wall Street Journal reports that 70 percent of new car buyers trading in a Pontiac this year did so on a non-GM model; for former Saturn owners, the number increases to 71 percent. Even Mercury owners have expressed their dissatisfaction by shopping elsewhere: 65 percent have bought brands outside the Ford family this year.

Incentives offered by GM to former Saturn, HUMMER and Pontiac owners earlier in the year helped, but drew criticism that the automaker was merely exchanging profit for market share. When GM gave a supplemental discount of $1,000 to owners of defunct brands, they were able to retain as much as 57 percent of the business from former Pontiac owners. GM president Mark Reuss justified the incentives as short-term and strategic, saying that they helped retain customers at a critical time, shortly after the re-launch of GM’s stock.

GM can’t afford to offer indefinite rebates to former owners, and cites that 23 percent of former Saturn owners buy their next car from Chevrolet. As good as that sounds on paper, it also indicates that 77 percent of former Saturn owners buy replacement vehicles from another automaker, and 35 percent of that business is going to a combination of Ford, Toyota and Honda.

To recapture potentially lost business without additional expenditure, GM is working with its dealers to target owners of defunct brands, reminding them of current programs and promotions on similar, in-production GM vehicles. Time will tell if good, old-fashioned customer service is as effective as cold, hard cash.

[The Wall Street Journal]

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Worst fallout is yet to come for Japanese, global automakers

Monday, Mar 28th, 2011 @ 4:44 a.m.

Very few have doubted that the devastation in Japan was anything less than historic, but new reports about potential future fallout are painting a grim picture that is expected to hit the canvas next month.

As it stands now, Japan’s major automakers have largely stopped all new vehicle production as they continue to assess the damage to their factories and their supply chains, but a report by the Associated Press is suggesting that the true production stoppages may not be felt in the U.S. until April, when the delay caused from shipping finally catches up with the supplies that were already en route via slow-moving ships.

Leftlane has already reported on known potential shortages, such as the issue affecting Ford and Chrysler – and possibly others – thanks to a paint pigment shortage, or how Toyota has put all of its North American plants on notice that they may face work stoppages in the near future, but it appears that issues such as these are shaping up to be more widespread and long-term than previously expected.

The AP points out that a great deal of Japan’s total automotive industry, not just the automakers themselves, is currently sitting idle. Initial reports by automakers may have given false hope as the automakers announced that for the most part, their factories were either unharmed, or only suffered minor damage. The problem is that it now appears the damage to second- and third-tier suppliers, as well as the near;y nation-wide shortage of power, electricity, fuel and transportation is keeping even the undamaged facilities from operating.

Costs to automakers will hit the billions
Financial giant Goldman Sachs has put numbers to the losses by some Japanese automakers, and the picture they paint is grim – at best. Goldman estimates that Japanese automakers are losing $200 million every single day their plants are idling, which means losses have already climbed to roughly $2.8 billion. That means that moving forward losses could continue to tally $1.4 billion each week – a staggering figure.

To given an idea how serious those losses could be, Toyota’s total annual profits in 2010 would be wiped out in just 11.5 days at the estimated industry-wide loss rate.

What does this mean to the industry as a whole?
While on the surface it may seem like the devastation in Japan will give automakers based in other regions of the world a competitive advantage, the supply chain issues will likely continue to plague automakers from all origins, although none likely as heavily as those based in Japan. The customers will also lose because of the changes, as it is expected that global vehicle production could drop by as many as 5 million vehicles in 2011, from the projected 72 million to be built.

That translates to a smaller supply, and higher prices. In addition to the higher prices driven by shrinking supply, choices will also be limited, ranging from color choices to options, or even models.

Although no one knows for sure when the troubles will hit and where, it is being projected that the month of April could see substantial production stoppage as a result of part shortages in regions around the world.

References
1.’As Japan shuts down…’ view

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Toyota might idle Texas plant; German automakers could be next

Thursday, Mar 24th, 2011 @ 3:14 p.m.

That the massive earthquake that rocked Northern Japan earlier this month could have global ramifications is hardly surprising – especially after news today could Toyota will temporarily idle its San Antonio, Texas, assembly plant and that German automakers and suppliers are considering cutting production.

The production cuts come due to difficulty acquiring Japanese-made goods.

“We are informing our team members that, with the situation over in Japan, it is likely that we will see some nonproduction days coming,” Toyota plant spokesman Craig Mullenbach told members of the media.

Toyota builds its Tundra and Tacoma pickup trucks in San Antonio.

Meanwhile, the situation in Germany, where numerous vehicles and components are assembled, is also worsening.

“We have received inquiries mainly from western Germany, from companies that are signalling that they could face problems because their inventories could slowly start running out,” a spokeswoman for Germany’s Federal Labor Office told Reuters today.

Robert Bosch, one of the world’s largest automotive suppliers, says that it has inventory for at least the next week to ten days, but the firm says it could run low on parts shortly thereafter if production is not able to resume in Japan. Although Bosch is a German firm, the company supplies parts for every major automaker across the globe and it has assembly plants in Japan.

References
1.’Toyota Texas plant…’ view
2.’Japan quake sees…’ view

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UAW VP: Expects Ford to share the wealth, won’t target Japanese automakers [Op-ed]

Friday, Mar 18th, 2011 @ 11:45 a.m.

Leftlane took an in-depth look at the apparent double standards exhibited by the United Auto Workers in an opinion piece in late 2010, but now a different union leader has spoken out, sharing similar thoughts in addition to an overly honest statement regarding the UAW’s relationship with automakers.

The latest commentary coming from the upper echelon of the UAW’s leadership was made by Jimmy Settles, vice president and director of the UAW Ford department, who commented on the recent bonuses paid to Ford’s executives. Settles explained that he has no problem with the bonuses since he knows the UAW will be compensated similarly.

“I am going to look at that on the up side and say that I know that they compensated them very well at the top, so I feel that they are going to compensate us at the bottom very well,” said Settles, adding, “they believe in fairness.”

Settles’ suggestions go above and beyond the fact that Ford already issued bonus checks to its hourly workers earlier this month, averaging over $5,000, as part of its profit sharing – a move that was not required per the contract with the UAW.

Settles went on to explain that with this year’s negotiations with Ford the UAW is “looking for everything – plus.” Settles went on to explain that the priority of the negotiations is to provide “what’s best for the membership,” with no mention of mutual benefits for Ford and the UAW.

Short-sightedness
The conversation offered by Settles is troublesomely short-sighted and selfish, following the pattern of the UAW immediately expecting “their fair share” when automakers post profits even for just a short period of time. But the UAW has never approached a single automaker to offer concessions when the profits turn to losses. UAW leadership says often that it wants a mutually beneficial relationship with the automakers, and yet it seems that its priority is far and away to increase its own income, rather than to develop a long-term mutually beneficial arrangement to keep both the UAW and automakers in prosperity.

Settles also offered an interesting thought regarding the UAW’s plans to continue targeting Japanese automakers operating in North America. The UAW has long argued that its involvement in production does not create a hindrance to automakers, but rather a positive synergy, and yet Settles said, “If they [Japanese automakers] are in dire need, we would not be trying to take advantage of the situation [aftermath of the recent earthquake and tsunami in Japan].”

Settles’ comment seems to suggest that the UAW organizing at an automaker would somehow create a strain on the respective automaker, a suggestion that seems to conflict with past arguments by the union.

What’s your take on the recent suggestions made by UAW management? Does the UAW have a point, or are they asking for too much, too soon?

References
1.’UAW expects Ford…’ view

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