You know we all do it. Sure, we try to patronize the local grocer, but sometimes Wal-Mart is cheaper or more convenient. If you want the cheapest gallon of milk, a quick quart of oil or even a reasonably priced LCD TV, Wal-Mart has everything you need. In the next few years though, you may be able to head down to Wal-Mart, CostCo or your basic “big box” store to buy your next car. Right now, if you want to buy a car in Mexico, that’s where people go. Well, maybe not any car,but at least one particular brand, GS Motors.
Wal-Mart, CostoCo, Sam’s and similar stores are known for their ultra efficient supply chain management. They are able to ship things more efficiently than smaller stores and thus, are able to sell them cheaper. Analysts and car makers who make ultra-cheap cars (the Chinese) will be able to utilize these amazing supply chains to market to a huge number of people (people visit Wal-Mart over 130 million times per week).
However, these big box stores will have the same problems with these cars as they do with many of their toys. Quality. In the same way Korean cars like Kia and Hyundai had very sketchy beginnings in the US, the likes of Chery and BYD will have a tough time selling to Americans who have a higher expectation of quality. Their price will no doubt fund future generations of Chinese cars that are sure to have better quality and more mainstream design.
What does this mean for dealers today? It means that a bad economy might be the least of your worries. A combination of a falling dollar (with all the “stimulus” money Washington will print out of this air) and resultant lower purchasing power of our next generation will push buyers to look for alternatives to Hondas and Toyotas. The Chinese car makers will make an absolute killing with the favorable exchange rates and domestic brands will suffer without cheaper, better built cars.
So, how will dealers “deal” with everything going against them? In this writer’s humble opinion, tax brakes are the only hope we have. Right now, the corporate tax rate in the US is the highest in the world. Makes it pretty tough to compete when you’re cars have a 35% (plus state and local taxes) premium over that of your competitors. It makes sense to most economists that killing this tax rate will allow for car companies to sell cars cheaper and hire more people to make these cars. The government will in turn make money through the income tax revenue of those employees, thus recovering the money “lost” through lowing tax income. Cheaper cars means its easier to export them to foreign nations which, again, leads to more cars sold and more revenue for the Government. So the question is this: are we going to keep killing our manufacturers and dealers by keeping the corporate tax rate high (and in turn, allowing unemployment to stay high), thus empowering China and their economy or will we lower our tax rates so our companies can compete with the rest of the world and we can take the fight overseas? The current administration and congress seem to think they can will the economy through distribution of funds into “creating” wealth. Unfortunately, the more you fight economics, the more you will suffer. And by you, I mean the American people.