Why Buy a Chevy?

by Rick Ackerman

We should all be mystified by the fact that a company offering zero percent financing to so many buyers is supposedly making all of its profits from consumer loans. But that’s another story for another day, one that I’m sure will be written. For now, though, even with the massive shrinkage of the firm’s capitalization today, we need to recognize that GM shares are not going to zero in a month, or a week, or a year, or even in five years. To paraphrase Adam Smith: There’s a lot of ruin in a nation’s biggest manufacturer. How much ruin lies just ahead for the stock? My best-case target for the next five to seven months is 17.13, a hidden pivot.

Meanwhile, it’s apparent that neither American nor German carmakers can compete with Toyota, even on their own turf. But whereas GM can continue to furlough workers and downsize, Daimler Benz doesn’t have that option, at least not in Germany. Over the long haul, non-Japanese carmakers will have but one choice: get smaller. For the time being, though, they are likely to continue to employ the interim solution of making shoddier and shoddier cars so that they can compete on price alone, albeit barely; for even then they fail manifestly, since dealer incentives keep getting more and more outlandish.

Why buy a Chevy? With respect to materials, workmanship, design features and overall quality, dollar for dollar American and even German SUVs aren’t in the same league as their Japanese counterparts, Lexus, Acura, and Infinity. That’s why it currently takes…what? $8,500 of incentives to move a Chevy behemoth off the lot. However, even with the increasingly generous deals, it’s a mystery to me why anyone would buy a Suburban, an Expedition, a Tahoe, or a Durango in preference to the Japanese alternative. Don’t the buyers read Consumer Reports, where ratings for American cars are blighted with the magazine’s dreaded black dots? Maybe it’s just patriotism that keeps customers coming back to Ford and Chevy showrooms. And maybe its also patriotism that has restrained investors from dumping GM shares wholesale, at least until Wednesday.

If you want to know the future of GM, just read the reviews of its new Cobalt model. What the heck could the company’s engineers and marketing honchos have been thinking when they set out to update a design more than two decades old? They can’t even copy the innovations of Japanese automakers, let alone come up with good ideas of their own. Bottom line, American cars stink, and the industry can only continue to lose market share to Japan. Japan will have similar worries from China someday, but that day lies well down the road. Eventually the Chinese will export luxury models that will sell for a third of the price of comparable Mercedes Benzes.

In a perfect world, one managed by Adam Smith, the U.S. would be out of the car business by then and into something we can do better. “Like what?” you ask. Unfortunately, there is no obvious answer.