Sometimes you bury pride and sell on price.
Remember Ed Rooney, in Ferris Bueller’s Day Off? He drove a government issue K-car. During the 1980s, the Plymouth K-car was what the government bought when it needed something basic. If you were lucky, it had a $79 AM radio.
We heard a recent car ad; it was a regional buy for the Nissan Versa. The ad’s primary lure? The price. Less than $10,000 bucks, though we are sure taxes and other fees ratcheted up the price a bit. In a time when dollars are tight, you need to keep people coming into dealers and looking.
It’s the oldest trick in the retail book, the loss leader, the cheap car. And it is surprising that American automakers have ceded that cheap market to Asia. After all, when the Germans made Mercedes, Henry Ford made the Model T.
In this climate, American automakers Ford (NYSE: F), General Motors (NYSE: GM) and Chrysler are playing around with different sale prices, givebacks and zero percent finance gimmicks. What they are not doing is creating base models where the initial car price is cheap. Really cheap. The last time I looked at an American dealer lot, there were sale prices, but there was not a really cheap car with a very low price, except maybe the Chevy Aveo. That is a missed opportunity.
Base cars were fleet cars
In the last decade, American automakers did many things that were stupid. One thing that was particularly stupid was cutting back on fleet sales. We have a suggestion about why this comes up so often. When sales tank, and are down a whopping 50 percent (like Chrysler in 2008) they can say that part of the sales decline was “planned” as they “intended” for branding purposes to cut down on fleet sales to help the “resale value” of their cars.
Frankly, we would suggest resale value has more to do with quality; there are who knows how many Accords and Camrys running around, and their price is high because they last forever. Fewer means fewer.
What needs to happen?
Each of the Big Three automakers needs to have a strategy to sell at least one cheap base-model car for fleets, taxis, rentals and the like. For decades, Detroit did this. It would have two versions of many models, a fancy version, and a less fancy version. The K-car, the Plymouth Reliant, was sold in a cheap base model to the U.S. government. But better versions of the car were available. With badge engineering, Lee Iacocca turned the Reliant into SE, and then later a New Yorker and a Town & Country.
We quote directly from the Wikipedia entry:
Early advertisements for the K-cars promoted the low $5,880 base price. Rather than honoring that by producing a sufficient amount of base models, Chrysler was producing a larger number of SE and Custom models. When consumers arrived at Plymouth (and Dodge) dealers, they were shocked to find that the Reliant they were planning on purchasing would end up costing hundreds or thousands of dollars more. As a result of this, Chrysler corrected their mistake and began building more base models.
Chrysler made a mammoth mistake in eliminating its Plymouth brand, something we discussed in our 2007 article Down the Road for Chrysler Plymouth Dealers. It lost a cheap-car lure for Chrysler dealers. Detroit does not seem to get the message; for instance, a base model Ford Focus has an MSRP of $16,180. That’s not horrible, and through discounts you could get it lower, but last year local Toyota dealers sold stripped down Toyota Yaris’ for $13,500.
What else is lovely about a stripped car?
Ugliness: It is supposed to be ugly enough that people who see it will spring for a few thousand more dollars for additional options. Basically, it makes the fancy model look good.
Government: It gives you something to sell to the school board and local city administration.
New markets: Just as Southwest Airlines attracted passengers who might have driven or taken Greyhound (not other airlines), cheap cars attract sales from used car sharks, and do not cannibalize higher profit models.
Repair: Having more customers, even with base models, keeps dealer repair shops busy.
So bring back the stripped base model, Detroit. Remember: the Chevy Chevette sold for $4,995 in 1987.