05 January 2010

Bankruptcy Bad For Car Sales

In theory, General Motors and Chrysler were supposed to gain a competitive advantage by shedding fixed legacy costs that would give them an edge over the competition. But, apparently, going bankrupt is not good for your market share. According to Market Watch via Calculated Risk, the December U.S. sales of several major automobile compan are as follows (with year and year changes in sales for the month shown):

* GM down 6.1% to 208,522
* Toyota up 32% to 187,860
* Ford up 32.8% to 184,655
* Chrysler down 3.7% to 86,523

Keep in mind that many of these automakers have seen declining sales for multiple years. The word free fall comes to mind. Simply hitting bottom would be good for these companies.


Hyundai up 8% for the year.

Kia up 10% for the year and 44% for December.

Suburu up 15% for the year.

GM down 30% for the year.

Chrysler down 36% for the year to sales in absolute numbers that were the lowest since 1962.


Michael Malak said...

When I rented a car last week, I was surprised to be driving a Kia Optima, rather than a U.S. car historically favored by car rental companies.

I can understand why individual consumers would shy away from a bankrupt car company, over concerns about service in the out-years. But with car rental companies disposing of cars within 12 months, I don't understand the rationale for the switch.

Andrew Oh-Willeke said...

The American car companies have actively reduced their efforts to market to rental companies.

Historically, they offer rental car companies favorable prices on the theories that (1) this was a volume sale with wholesale rather than retail class marketing costs, and (2) rental cars introduced customers to their products.

The American car companies ultimately decided, however, that when the prices they were selling their cars to rental companies for was producing a loss for every sale, rather than a profit, that their prices had gotten too low, so they backed off on how aggressively they were marketing to those buyers.

Another factor is the improved quality of new cars. As the useful life of a car has increased and the number of defects in the early year of a car's life has fallen, sales of used rental cars at a price even lower than the prices offered to rental car companies themselves have undercut sales of new cars.

Put in terms an economist would use, price discrimination (i.e. offering different prices for the same thing to different customers) only works when it isn't possible for buyers to arbitrage (i.e. for low price buyers to pass on their price advantages to people who would otherwise be high price buyers). Improved quality has made arbitrage more feasible for buyers.