Someone Has To Be Profiting Now, Right?

September 22, 2009

There’s an old adage in the business world: no matter how bad things get, there’s always someone out there profiting from it. It was true when my immigrant great-grandfather and grandfather (with his sixth-grade education) bucked the tide against the depression during the years running into WWII thanks to their scrap metal business…and it must be true in today’s economy.

When it comes to the auto industry, however, winners are seemingly nowhere to be found. We already know that the manufacturers have been getting slammed harder than a teenager in a punk concert mosh pit. Consequently, all the new car dealers, OEM parts suppliers, Madison Avenue advertising companies, and sponsorship-heavy auto sports and lifestyle events have taken it in the shorts.

But someone has to be winning, right?

The knee-jerk reaction is to say used highline auto sales operations are profiting, but that’s not really accurate. It is true that with production of new Mercedes, BMW, Audi, and Lexus at a snail’s pace, new car inventory is a thing of the past (at least for certain models). With desirable units nowhere to be found, potential clients have to either wait or buy used. Most are simply not buying at all, which means compounding the problem with no used car trade-in. The lower supply combined with higher demand has driven up the values of highline used vehicles.

This doesn’t necessarily mean more profits for the dealer or the auction company. Higher prices can’t necessarily be recouped by dealers, and auctions are killed by lower volume. The only dealers which have seemed to do well are those well-run operations catering to demographics rich in panic sellers as well as gotta-have-it-now buyers.

If people are keeping their cars longer, then the automotive service industry is making off like a bandit, right? Nope. Dealer service centers rely almost entirely on new and used car sales to generate business – and overall corporate profits. As for independent shops, the down economy has turned regular service clients into “fix it when something important breaks” customers. Furthermore, the costs of parts, tools and services used by mechanics have all increased…and only so much of these cost increases can be passed on to the customer base in a down economy. The only upside is that there are more good mechanics looking for work, so hiring qualified talent isn’t as hard as it was in the good old days a few years ago.

Collector car auction volume and results are down. Car shows have reduced attendance and participation. People are buying less gas. Restoration parts suppliers are hanging on by a thread. Online listings on sites like eBay and Craigslist are up, but sales resulting from these listings are down sharply.

The bottom line is that no single group associated with the auto industry seems to be “winning”. The quick and the smart individuals, though, are out there positioning themselves for success. Buy low now to sell high later…or taking the opportunity to develop, test and create synergies for new technologies/products now to fulfill a need when the market returns.

And if you couldn’t guess — automotive journalists aren’t winning now, either. With advertising revenue down, the newspaper industry in shambles and a flooded talent pool, it’s nearly impossible for automotive content providers to expand into new publications. Maybe our President will bail out the automotive journalists? I’m 6’4”, doesn’t that qualify me as “too big to fail”?

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