Partly Correct on Rising Car Prices
GM Expects Car-Price Rise – WSJ.com
GM is raising prices:
“In December, GM raised its prices an average of 1.5%…”
This is great news if you're an employee, stockholder, or fan of General Motors. This means market demand is strong for products and overproduction has been curtailed (they're not dumping as much product on rental car fleets and they have some hot products).
The rest of the sentence I originally quoted read:
“In December, GM raised its prices an average of 1.5%, mainly because of higher raw-materials costs, especially nonferrous metals, steel and oil.”
No, no, no. That is such a tired excuse, “our costs went up, so we have to pass it along.” GM raised prices because they can, because the market will accept that (or they think it will). It's just so politically increase to say you're increasing prices because of increased demand, isn't it? They're not entitled to raise prices because of steel costs or elective costs, such as investments in new technologies…
“[CFO] Fritz Henderson said the industry has less manufacturing capacity than in the past and therefore less pressure to sell vehicles cheaply to move inventory.”
It's all about supply and demand. I'm sure GM realizes that… they just can't say it, right?
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The automakers want it both ways… to raise prices when their costs go up, but they squeeze suppliers to prevent them from raising prices when THEIR costs go up.
Today’s WSJ article says:
“But like virtually all parts suppliers in Detroit’s automotive ecosystem, Plastech has been caught between rising production costs and falling demand for the products in which its parts are used. The cost of plastic, dependent on an oil-based resin, increases along with oil prices. Detroit’s auto makers typically have resisted paying more for a part and have instead insisted on lower prices over the life of a supply contract.”
Since at least 2002 I have seen seen figures on automotive “price deterioration” and the effects on profit and loss. Standard features and the level of refinement and quality demanded by the customers have been going up, often along with the rebates.
I agree it’s the market that dictates prices in a competitive market economy. I’ve also experienced the 70’s with double-digit inflation and shortages.
So while we’re talking about markets setting prices, let’s also talk about markets unleashing “creative destruction”, which also includes bankruptcies, but ultimately (at least in theory), the most efficient use of resources.
While manufacturers certainly cannot collude in raising prices, if raw material costs are going up substantially, it is more likely that all manufacturers will be raising prices somewhat in unison. Just look at the competition in the airline industry or trucking industry and the impact of fuel prices.