I just finished writing a story about the impact of financial problems at General Motors and Ford on the general public. (See "Detroit's Woe, America's Worry," BW Online, 4/26/05)
I wasn't sure what I'd turn up when I started my reporting, but I uncovered something pretty major: Car prices are going to rise in the near future -- and keep rising. Incentives, too, are already fading. If you're in the market for a new car, you might want to buy sooner rather than later.
The problem is that the economics of the auto industry are out of whack. It simply costs car companies more to produce cars than they can sell them for. Since automakers can't squeeze anymore costs out of production and no one wants them to go bankrupt, they will have to raise prices.
Here's an anecdote that didn't make it into my story that shows how cheap cars actually are relative to other major household expenditures: David Cole, chairman of the non-profit automotive think tank, Center for Automotive Research (CAR), says he was shocked to find that he could buy three mid-sized cars for the same price it will cost him to remodel his kitchen -- about $60,000.
The new kitchen comprises new counters, cabinets, appliances and labor, but no major construction. "When you consider the technology, electronics, the power train,the materials, that go into three cars, they aren't even in the same game," he told me. "It served to illustrate to me the tremendous job the auto industry has done in creating value. But basically it is running out of gas now."
His research shows that 10 years ago it took the average worker 30 weeks to pay for a car, but it takes just 20 weeks today.
No one wants to pay more for a car. But the way the industry is going, it looks like we just might have to.