Thursday, March 12, 2009

What Would Uncle Frank Think?

Originally Posted 1.7.09

Believe it or not, this is the best time you’ll have to buy a car or truck for years to come. The rebates offered by the automakers are incredibly lucrative. In fact, they’re insane.

According to the general manager of a local Ford dealership I know, only a fool would buy a vehicle under a fleet program today. Rebates and incentives are far more lucrative. Sure, it sounds nice to hear that some fleet program will save you $5,000 off the sticker, but the incentives are better. One manufacturer, for example, is offering $10,000 in rebates for every with a diesel engine. Why pay more for the fleet program?

Normally, the automakers use rebates to clear dealer inventories, taking a financial hit, and then recovering some of it when they load the dealers the following months. Not this time.

The automakers are following a pattern that seems to repeat every ten years or so. “Business Week’s” auto industry analyst Ed Wallace recently noted that, “I've seen this before, in 1974, 1980-81, and in 1992, when Detroit automakers found their backs against a wall. It's based on one fundamental reality: Detroit is setting up for a continued downturn in the market.”

The automakers are clearing the deck and scaling back production. They’re going to jack up prices so they can cover their overhead and make money with higher margins from the sale of fewer cars. This means fewer incentives, fewer fleet programs, and generally higher prices going forward. If you’re planning on replacing your company trucks, do it now.

According to Ed Wallace, “If history is any guide, what we witnessed in 1974, 1980-81, and 1992 was a fairly consistent series of price increases to create profits even as sales tanked.”

Raise prices to make more money on less volume? What would Uncle Frank think?

For those who don't know, Uncle Frank is Frank Blau who was one of the original prophets of profitability for contractors. Frank advocated charging what you needed to make a fair profit.

© 2009 Matt Michel

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