Step one, make a car that people want. Step two, sell it for a price that people will pay, and yet is higher than the cost of designing, making, selling, and delivering the car to the final customer.
Alright, that was oversimplified.
As I write this, the large American auto manufacturers are trying desperately to sell cars. Ford has announced layoffs. Chrysler has announced $4000 incentives on brand new 2004 vehicles and $5000 on 2003s. GM is offering no-cost loans — something they are only able to do because they both build and finance the car. The number one item if you search Amazon.com for “American Cars” is “The End of Detroit: How the Big Three Lost Their Grip on the American Car Market.”
Meanwhile, the Japanese are selling cars almost as fast as they can make them. Honda and Nissan are both doing well, but by far the biggest success story is the redesigned Toyota Prius. You may remember the Prius as a very small, rather pricey hybrid car, distinguishable from the Echo only by the chrome. This year it is a somewhat larger hatchback available for roughly $21,000. It even gets substantially better milage than before. Edmunds describes it as “a legitimate family sedan that offers everything you would expect.” There are no incentives, no rebates.
Toyota is selling almost 6 times as many of them as they expected. It remains to be seen whether this demand will hold up, but this is nevertheless impressive. Although this car may not meet everyone’s needs, people who bought them seem to be happy with them. This isn’t one of those cars that wows the automotive press but falls short in real life, by all accounts. Toyota has step one (above) well under control.
But what about the second step, being able to sell it at a profit? Toyota claims they have that under control too.
Does it seem odd that the Detroit newspapers didn’t have much coverage of this success story? I thought so too. Maybe being someplace where the majority of the people can get family discounts on Big 3 cars gives them myopia regarding foreign cars. Time for Detroit to take a road trip.
Exactly right. After being clobbered by an over-valued yen and a resurgent Detroit in the 90’s the Japanese have figured it out.
Not everyone wants or needs to drive an SUV and the mid-range sedans offered by Detroit are expensive, fuel inefficient, not very attractive. Which means there have to be incentives to move the tin.
There are a lot of us out there who would like to drive fuel efficient cars which had a little style – the Japanese know this and are reaching into that market.
Thanks for mentioning my book! Your comments are exactly the reason why I wrote it. I think people would love to own vehicles from Detroit — IF they meet all their needs. But until then, they’ll buy what does and what they trust.
The Prius is a fantastic step forward for the automotive industry, but Toyota has not turned a profit from this technology as of yet.