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I think Detroit is Dead

Discussion in 'General Entrepreneur Discussion' started by tbsells, Jan 24, 2008.

  1. tbsells
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    tbsells Contributor

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    Not the city itself, but the American auto industry it symbolizes. I drove through the local auto mall tonight looking for something to replace my Toyota LandCrusier. I like big SUV's. They just work well for my family and business. There are also generous tax deductions available for business use of SUV's and trucks in excess of 6,000 pounds. I could write off up to $25,000 the first year. With all this in mind I stop at the GMC dealer. First thing I see is a leftover 2007 GMC Yukon with a big 0%, 60 months sticker on it. It takes only a second to see why its left over-the sticker is $50,500. This Yukon is fairly well equipped but not loaded, no navigation system, no chrome wheels, no Denali package which is top of the line. Just fairly nice and totally unremarkable, but $50,500. No wonder the thing is leftover. A quick look around the lot shows 6 or 7 more just like it. I walk away in disgust. I then check out a new GMC Acadia crossover SUV. Not bad, but not worth the $44,000 sticker. My question is who is going to buy these things? $50,000 or a car payment of $800 to $900 a month for 5 years. No thanks. I'll keep my LandCruiser and buy another one like it when the time comes. I have to think I'm not the only one walking. I saw a report tonight that Ford lost $2.8 billion in 4th quarter 07. It was spun as good news because the loss was only half of the 4th quarter 06 loss of $5.8 billion. How can any company sustain these types of losses? I think the American auto industry is headed for extinction.
     
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  2. Redshft
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    Redshft Contributor

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    I am 100% in agreement with you. It amazes me people buy these things, I guess solely for status. I went looking on a Chevy/Caddy lot not too long ago, soon after the new models cames out. While looking at the Escalade I noticed all the "chrome" is plastic. The same was with the Acadia. The interior is rental quality at best. I noticed too much "looseness" and parts that were easily manipulated. American build quality is embarassing unfortunately.

    I think the new Sequia may tickle your pickle if you want to stay with Toyota(which you can never go wrong with Toyota). There is also the Nissan Armada. Rumor is Nissan has a turbo diesel in development!
     
  3. Runum
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    Runum Platinum Contributor Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass Summit Attendee

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    Got to agree. How is the average working Joe paying for these average cars costing $40k or more? Too much $$$ in depreciating assets. I had never owned an import in my life(owned mainly GM) until our last purchase. Bought a Jetta in June and have never looked back.
     
  4. mtnman
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    mtnman Bronze Contributor FASTLANE INSIDER Speedway Pass

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    I ran into the same here in Orlando.....52k for an Avalanche. I find it ironic that GM especially expects me to pay a hefty price for a new truck that has orange peel in the paint all down the side of it. The body panels look like saltine crackers!
     
  5. PurEnergy
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    PurEnergy New Contributor

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    I too agree that something is wrong with the American new car market. My business is doing paint work for car dealerships, used cars mostly. This could be the best year we've had in the last five. I'm seeing a lot more people buying USED cars even at my Toyota customers. Then again, dealers might cut everything to the bone. Overall numbers are weak right now but it's typically slow this time of year. I believe I just read somewhere that new car sales are expected to be at a ten year low this year.

    I think we are moving into some very different times over the next few years. For most people the bottom line is the monthly payment. That and fuel economy seem to be what's driving the market right now. Then again my neighbors 21 year old son just traded in his Mazda 6 for a 2005 Yukon yesterday. :smx4:

    That Seqouia is a BEAST.
     
  6. HenkHolland
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    HenkHolland Contributor Read Millionaire Fastlane

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    I'm surprised to read that a higher weight is a reason to get tax deductions for heavier SUV's and trucks. In Europe the trend is that you receive tax deductions and other benefits when you buy or lease vehicles that consume less fuel and hence create less environmental damage. Toyota and a few other non-American automobile manufacturers understand these trends. I have the impression that the American car manufacturers (and the government for that matter if they continue promoting the use of heavier, i.e. less fuel efficient vehicles by means of tax deductions) are still missing the point. If that continues for too long I guess it will lead to extinction of the American industry.
     
  7. camski
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    camski Contributor

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    Like anything someone will come along a build a better mousetrap (or in this case car), and either the big three will change or go the way of the dinosaurs. With the credit crunch (if banks wont lend people 100k to buy a house why would they loan the same people 50k to buy a car), new car costs will have to drop dramatically if they expect to sell any. Not to mention the glut of used cars that are out there right now. At some point the UAW will probably have to make some major concessions or they will put their owners right out of business. side note-- this is not a knock on unions or anyone else, they asked and mgmt gave, you cant blame them for that. But unless thsy start working cheaper that industry is in deep trouble
     
  8. tbsells
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    tbsells Contributor

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    I think you're right.
     
  9. kimberland
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    kimberland Bronze Contributor

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    Yeah, that was my understanding of Detroit's issues,
    that the legacy costs (pension and health care) were making them uncompetitive.

    Just curious....
    Has there been a comparison done between household income and price of car?
    Googling it, I see many comparisons with price of housing
    but I can't find one with price of car.
     
  10. 8 SNAKE
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    8 SNAKE Contributor

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    I'm a bit torn by the current pricing model used by the Big Three. Customers have been trained to expect huge rebates and incentives when buying their SUVs and trucks. As a result, the Yukon that you saw stickers above $50k. In reality, that vehicle will sell somewhere south of 40 grand if the buyer has any clue what he/she is doing.

    Would sales go up if the Big Three put realistic sticker prices on their vehicles and did away with the $10k discounts? I don't know, but I'd be curious to find out.

    I also disagree with everyone jumping on the import bandwagon (not here, but in general). Look at the progress that GM has made in the last couple of years. There are a lot of good vehicles coming out now and in the near future. The CTS, Malibu, Corvette, Silverado and various SUV's are among the best in their respective classes. The biggest hole that I see in the GM line is an attractive compact car to compete with the likes of the Civic, Jetta, etc.
     
  11. andviv
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    andviv Gold Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

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    I read that japanese automakers are paying around $23/hour to their employees (non-unionized, mind you) in their plants in the south (Louisiana, Alabama, if I recall correctly), compared to $25/hour or so to the UAW. If what I read (and I recall correctly) is true then this is not the real problem.
     
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  12. NoMorePay
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    NoMorePay PARKED

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    The book Punk Marketing (recommended) has a section about the Big Three training consumers to expect big rebates and incentives. Saturn was different when they came out with their no haggle policies. It addressed a need of some consumers- those who just want to buy a car and be done with it. For the deal hunters, they still have the Big Three, where they can feel better about the deal they are getting because look - Im getting a $50,000 vehicle for only $10,000 after rebates and double coupons. Its all marketing. Punk Marketing applauds Honda and Toyota for their focus on innovation and cost savings. Look at how many accords are getting 300k miles.

    I don't know Detroit is dead, but I think they need to realize that cosumers are in charge.
     
  13. 8 SNAKE
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    8 SNAKE Contributor

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    The wage is small potatoes in the grand scheme of things. Healthcare and pension costs are what cripple the Big Three.
     
  14. tbsells
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    tbsells Contributor

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    I think sales would go up if the product was priced realistically. Pricing is key no matter what you are selling. In my case, and I'm sure in many others the salespeople don't even get a chance to talk to the potential buyer because the sticker shock runs them off the lot. I sell for a living so I'm not thin skinned or adverse to negotiation, but $50K for an average Yukon was it for me. It was very close to an insult.
     
  15. camski
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    camski Contributor

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    one other thing that hurts the auto industry is cutback in fleet sales. When an economic downturn hits companies try to milk extra miles or years out of their fleets and fleet sales are a huge part of the detroits business
     
  16. 8 SNAKE
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    8 SNAKE Contributor

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    I tend to believe that you're right. A lot of people window shop on Sundays or other times when the dealerships are closed. I'd imagine that others, like you, experience the sticker shock and move on to something else.

    To me, it doesn't make sense to train your customer base to expect huge discounts and incentives.
     
  17. 8 SNAKE
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    8 SNAKE Contributor

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    Fleet sales help drive volume, but do they really add much to the bottom line?

    Note: I honestly don't know, so I'm asking.
     
  18. Redshft
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    Redshft Contributor

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    This is true! Mention the words "dealer invoice" to your salesman and he will go running and crying like a baby to his sales manager. Most people are intimidated by car sales people because in all reality, they are damn good at what they do. Most dealers have a system that works. They put pressure on you, they play number games, they manipulate numbers so they make sure they get their profit. Most people feel that they can't go in and tell them what THEY want. I was able to get my 350Z and motorcycle at used car/bike value when I purchased them brand new. They stay(ed) below retail value on my depreciation as well. Just like there is a system for selling cars to maximize profit, there is a system for buying to maximize value.

    Anyway, I think one of the major problems with the American companies(ESPECIALLY GM) is they have built too many brands off one. Look at the trucks for example. You have the Tahoe, the Yukon, The Yukon Denali, The Escalade, and the Hummer H2!! All based off the same platform just with minor cosmetic and mechanical changes to differentiate them. I think there is a lot of money wasted b/w the Tahoe and Yukon. Same goes for the Sky/Solstice. Why do you need TWO of the same car?? I can understand, I guess, the desire differences b/w a Tahoe and an Escalade. But there is very little difference b/w the Escalade and Denali. Yet GM is spending money in producing the different headlights, grills, , body panels, badges, interiors, or whatever other differences there are. BOTH ARE LUXURY SUVs WITH THE SAME PERFORMANCE!!!
     
  19. Autospun
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    Autospun PARKED

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    I have a Chevy 3500 dually, If Nissan or Toyota would beat that with a turbo diesel, I'd be first the first to get.
    Personally, My daily drive is a German import but for the trucks I go for American, I think thats whats saving Detroit at some level. I think I see way too many camrys compared to F-Focus or Malibu, but alot of F123-50 and chevys compared to tundras. I guess there is some equilibrium there.
    How come there isn't any American rides in Japan but alot of Japanese rides here?
     
  20. 8 SNAKE
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    8 SNAKE Contributor

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    To an extent, I agree with you. A decade ago, GM was terrible about offering the same vehicle under three or four different badges. Now I think that they've trimmed it down pretty well. What I'd really like to see (but might not be financially feasible) is more visual differentiation between the GM and Chevy lines. They obviously need to keep the same underpinnings, but GM should be able to offer two different looking vehicles to appeal to a wider audience (like the Tahoe and H2, Trailblazer and H3). The Denali is just a trim level on the Yukon, so I wouldn't count it as an entirely different model. The Escalade was a bit of a surprise hit for GM, so that one will stay in the stable as GM's most upscale SUV. Again though, I'd like to see a bit more to differentiate the Escalade from the rest of the pack.
     
  21. tbsells
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    tbsells Contributor

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    I think you're right. I live in southern Ohio which has always been the land of the F-150 and Chevy Silverado pickups. Lately, I've been seeing alot of the new Toyota Tundra pickups. They are impressive. When Joe sixpack from southern Ohio is buying a Toyota pickup the fat lady is warming up. I don't want to sound happy about this. I'm not. The Ohio economy is heavily dependant on the BIG Three. I wish it were better, but years of mismanagement is really taking its toll. Market share (like any kind of momentum) is really hard to regain once its lost.
     
  22. hakrjak
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    hakrjak Bronze Contributor Read Millionaire Fastlane

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    I dunno... We have an Acura MDX and a Dodge Durango in our garage... The Acura's doors are all really flimsy, and when the wind blows -- they fly open like paper and smack into the car next to us at the grocery store. The Durango is a big tough beast, and when you close the hatch on it -- you really feel like you are closing the hatch on a tank.

    When we go off roading or camping, we always take the Durango, but the Acura is a cute little grocery getter my GF can drive around town and get lower mileage in.

    My last car was a BMW 328 convertable, and after paying the constant repair bills on that -- I can honestly say I'll never buy another European car in my life. Every time I took it to the shop the bill was $500 minimum, and just for a break job it was $1000-1200 bucks. Tires were insanely expensive, and just getting the check engine light reset was usually $200 bucks. Yeh it looked hot driving around town, but once I had it paid off -- it was like I still had a car payment. No thanks! :)

    I think the reason why I primarily favor American autos now is just because if I need to get something fixed (And I drive the hell out of my cars... 5-10 years now) -- It's a lot cheaper to get the repairs done most of the time than those foreign jobs. The foreign jobs may last longer, but that's even debateable... I dunno if I'd trust a little toyota truck off road in some of the places I go here in Colorado to camp & fish.

    - Hakrjak
     
  23. Redshft
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    Redshft Contributor

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    This is surprising. I am a firm believer in BMWs quality. I own two BMW's that have clocked over 200K miles. The other I suspect is over 300K miles(The odometer stuck at 150ish about 10 years ago). The only problems with BMWs is they have small annoying problems like something with the moonroof or a problem with power windows after a while, but that happens with anything. Their motors and drivetrains are bulletproof. I have a little beater BMW 318 I paid 1800 bucks for about 2.5 years ago. I've changed the oil on it once and it still runs like a dream, haha. If you look around online you can find cheap parts and do the repairs yourself.
     
  24. Autospun
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    I ran to the bank and counted at least 9 dealerships, new cars at that, this is Des Moines, IA and I'm just curious, where will all this "new 07's" go since its already 2008, what happens to the new 2006 models? How do dealerships acquire franchise to all those models, ie Betts:Volvo, Cadillac*, Toyota, Lexus, gmc* and pontiac (I thought Pontiac and cad. are by Gmc). I've been to a few countries now and I think U.S has the most dealership per city. does that means it maybe a good business here? excuse my questioning.
     
  25. 8 SNAKE
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    8 SNAKE Contributor

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    I'm not entirely sure that I understand your questions, but I'll take a stab at it.

    1. Dealers will cut prices on old models (in this case '07's) to move them out of inventory. They did the same thing last year with '06's.

    2. Each manufacturer has different requirements to get a franchise. Some people start new franchises and others buy existing franchises that are for sale.

    3. General Motors (GM) owns Chevrolet, Pontiac, GMC, Cadillac, Saab, Hummer, etc.

    4. Auto dealerships are like anything else. Some do really well and others go broke. The industry is heavily influenced by economic conditions. Right now, it's a very tough market to sell in.
     

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