I am a sucker. Or at least I have been. And may be sometime again in the future. You probably have been, too. Let me explain…

Let’s say you’re in the market for a car. You lust after a new one. Doesn’t matter what brand or what model. You buy it. As you drive it off the lot, it automagically loses about 20% of it’s value, simply by moving from the “new” to “currently owned/technically used” column. Say your new vehicle costs $30K, not an unusual amount for a new whip. You’ve put down 20% of the cost of the vehicle, either by trade in, down payment, or both. You plan to finance $24K. Fair enough, but when you drove it off the lot, it lost 20% of it’s value. At this point, you’ve paid $6K for the privilege of driving some new wheels. Hope you’re happy. If you’re not, let me acquaint you with a new term to add to your lexicon: under water. This is the phrase lenders use when you owe more than the item you financed is worth. If you go to trade it in on something you like better, you’ll pay for that mistake for, oh, let’s say the next ten years or so.

My wife drives a Jeep Liberty. Her payments are around $523 per month, give or take. She’s got 24 months left on the loan. 24 x 523 = $12,523. We called the finance guys to get a payoff amount. It was less than $9K. That means that, unless we pay off the car early, we’ll end up paying the finance company a whopping extra $3,552. 

That’s a lot of interest, just to be able to make a monthly payment. The sad part is, the vehicle is worth about $12K if we were to sell it, and just $10K as a trade-in. In other words, we’re under water on the Liberty. 

Here’s a poser for you: given that it makes absolutely no financial sense to buy a new car (and financing any car is essentially not any different than cutting a hole in the bottom of your pocket and letting your pocket change dribble out) why would anybody want to buy a new car? 

I’ve been driving a used Wrangler for years. Bought it in 2001. It had 82,000 on it. I’ve got about 132K on it, and considered selling it, so I could buy a 4-door Wrangler (see – I’m a sucker, too). The amount I can get for it is within a couple of hundred of what I paid for it. Effectively, that means I’ve been driving a car for free for the past seven years (not counting very minor repairs, a new set of tires, gas and insurance, all of which I’d have to pay for any vehicle). Not a bad deal. 

So I ask you, how solid a business model can you possibly have if you’re entire business model depends on gullible consumers that have no clue about what it really costs to buy that car? It gets worse. What if a majority of those that buy new cars suddenly realized that they’d be much better off buying used? In order to keep a steady supply of used cars, car manufacturers depend on people ditching their current rides and upgrading to a new buggy every four to five years. If the public wises up, where will the newish used cars come from? 

As the economy gets even worse, how will car manufacturers attract new car customers? Think of it – they are trying to get Congress to prop up a business model where, even if they built cars we wanted to buy, at a price that was competitive, they are still dependent on stupid people…or at the least people willing to make a stupid decision. 

Obviously, when your entire industry is pulling one massive Blanche DuBois (dependent upon the kindness of strangers), you gotta have a gimmick. Enter marketing. 

Without marketing, the entire automotive industry is toast. Knowing that, it’s about time that ad agencies, TV networks, newspapers, et cetera might want to point that out to the new car dealerships. Maybe if they started looking at marketers and ad agencies as lifelines and saviours, instead of as necessary evils.

This entry was posted on Tuesday, December 9th, 2008 at 4:55 pm and is filed under marketing, media.You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.