Why Automakers' Slow-Walking Strategy on Affordable Cars Could Hurt Their Profits and Inflation Rates
The Slow-Walking Strategy in the Auto Industry
The auto industry has always been a competitive market, with various manufacturers vying for consumers' attention and dollars. However, there seems to be a new strategy emerging among internal combustion engine (ICE) car makers – slow-walking inexpensive cars to pay for electric vehicle (EV) investments. This approach entails limiting the production of affordable ICE vehicles, forcing customers to purchase more expensive, high-profit models while investing in EV development.
This tactic appears to make sense on the surface, as many cheaper cars are either unavailable or have long waiting lists. But is this truly a winning strategy? If so, why wouldn't every automaker adopt it to increase profits? It's worth noting that ICE vehicles are becoming increasingly obsolete, much like horse-drawn carriages of the past. As such, it makes sense for manufacturers to squeeze as much money as possible from the existing market before transitioning fully to EVs.
Production Limitations and Inflationary Effects
One reason behind this slow-walking strategy could be lessons learned from recent years. Between 2020 and 2022, manufacturers discovered they could claim shortages and charge significantly more per car – sometimes up to 50% more. This practice isn't limited to just automakers; similar tactics have been observed across various industries, including food items and soft drinks. Consequently, these actions may be contributing to current inflation rates.
Higher-priced cars tend to be more readily available due to fewer buyers interested in them. Dealerships can then convince potential customers that they must choose between purchasing what's on the lot now or waiting a year for a lower-priced model – which might also come with a "market adjustment" fee. This manipulation allows dealerships to add additional fees when customers feel they have no other choice but to buy.
The Future of Electric Vehicles and Legacy Automakers
As the auto industry continues to evolve, there's a growing demand for more EV options. Tesla has been leading the charge in this area, even going so far as to process their own lithium for batteries. However, many legacy automakers appear to be dragging their feet or protecting internal interests rather than embracing the shift towards electric vehicles.
In the coming years, we may see new players enter the market – particularly from China, with companies like BYD and Xpeng poised to make a significant impact. These manufacturers are likely to capitalize on opportunities before U.S.-based or Japanese automakers can fully adapt to the changing landscape. History has shown that foreign automakers have successfully penetrated the American market, as evidenced by the prevalence of Japanese and Korean cars on the road today.
Some established automakers, such as Honda, are already taking steps to replace all their models with EVs within a few years. This bold move could help them avoid making the same mistakes as Nissan and Mazda, who are struggling but still clinging to gas-powered models.
Ultimately, it seems that traditional manufacturing companies risk becoming irrelevant if they don't embrace the EV revolution. Much like how IBM mainframes were replaced by personal computers, ICE vehicles will eventually give way to electric alternatives. The slow-walking strategy might provide short-term gains for some automakers, but it's unlikely to be sustainable in an increasingly electrified future.