$4,999 Car Is the Answer

Today’s Jeopardy question: How do you turn around the auto industry? For at least one automaker, perhaps even two or three, a sub-$5,000 car is my answer. Over lunch, I read news analysis “Small Isn’t Beautiful” in Sept. 19-25, 2009, Economist (I’m a print a subscriber). Economist aptly explains why the auto history is hosed, now that cash-for-clunkers programs are gone, there’s no credit for fancy, high-priced cars and demand increases for smaller, fuel efficient and environmentally friendly vehicles. Let’s not forget the production problem: For mature markets, at least, production capacity exceeds demand (and did before the econolypse).

My unsolicited remedy: The aforementioned sub-$5,000 car. It’s time somebody in the auto industry started to think volume, which appears to be blocked by perceptions about who the buyers will be in mature markets. The United States is a nation with plenty of autos, which can be said of Europe, too. According to the US Department of Transportation, there were more than 254 million registered vehicles in 2007. About 136 million were passenger cars. By appearances, and given the econolypse, that’s a seemingly saturated market.

I agree it is if vehicles cost $10,000 or more and require most people to obtain financing, which I’ve long believed is one of many factors keeping prices high. With cheap financing available, often through the automakers selling the vehicles, there is more incentive to sell for more rather than less. Easy credit is history now. Economist claims there really is none for leasing, and I don’t know many people who really qualify for cheap new car financing now that the economy is busted. Do you?

If people can’t borrow to buy, sell them something they can afford. It’s Capitalism 101 stuff. But automakers can’t do that if they think the market is saturated, for fear they will lose margins with low volumes of sales. But there is a market. A big one, made of many parts. Young people, for example. The so-called Net Generation (Generation Y or Millennials, if you prefer) is about 80 million Americans born between 1982 and 1995. That’s 5 million more than the Baby Boomers (1946-1964, may they rest in peace). The oldest Millennials are in their late 20’s and the youngest their mid-teens. Behind them, the oldest Gen Zer (Is there an official name yet?) will be eligible to drive in about three years in most states.

Automakers, sell these young adults reliable, safe, fuel-efficent cars with air conditioning and that look good for about 5,000 bucks. They can save their money and ask relatives to chip in whatever is necessary. Put in a good radio and CD player, too. But everything else should come from the aftermarket, through the dealerships or third parties. Young adults customize themselves with tattoos and piercings, right? Let them customize the vehicles, with detailing, paint jobs and better audio sound systems.

What seemed like an impossible selling price before shouldn’t be as hard after the collapse of the US auto industry. What US company could have brought a sub-$5,000 car to market? Certainly not Chrysler or General Motors. But what is GM today? Fractured pieces. GM discontinued or sold off most of its brands. The surviving sold-off brands are now singular companies, freed from the worst GM overhead and infrastructure.

I look first to Saturn, which Roger Pensky snapped up from GM, and what Motor Trend Blogger Angus MacKenzie asserts could be “the first truly post-modern auto company.” Oh, I agree with that, and why not do it for $4,999 a vehicle? Whoever gets there first, with reliable, enticing, affordable transportation will own the market segment. The market is much bigger than 50 or 60 million young adults. Other segments: Lower income buyers or older Boomers who drive less and favor value over style. Update: Days after I posted, Roger Pensky withdrew his bid for Saturn.

Would you buy a new car, cash and carry for $4,999? Hell, I would.

Photo Credit: Sudhanwa