2009: Slow Auto Sales, Higher Prices

The time of heavy rebates is over as carmakers get ready to raise prices to increase profits. Get ready for sticker shock

By Ed Wallace

On Tuesday, Dec. 16, Moody's Investors Service suggested that, should Detroit free-fall into bankruptcy, the nation's economy should suffer "depression-like" consequences. In spite of that dire prediction, in time this country will again be able to look forward to the future—provided we fix something first: At the national level, it seems, our elected officials' ability to prioritize is broken.

Detroit, feeling the same crunch you and I are, goes to Congress asking for a bridge loan of $14 billion to continue operations, thereby saving the jobs of potentially millions of Americans. Yet this request for help to keep unemployment from multiplying overnight ends up inciting one of the worst partisan debates of the past five years, in which the sole intent of some was, demonstrably, to finally destroy our industrial base. Meanwhile Bernard Madoff, the ex-chairman of the Nasdaq stock exchange has been accused of running a that defrauded investors of $50 billion—unchecked over possibly decades—and yet the partisan debate still is trying to make the case that it's Detroit failings that is the real problem.

Now that's a misplaced priority.

They Understand Something We Don't

Notably missing from the U.S. auto bailout debate is this fact: The problems in the automotive industry are not ours alone. They are worldwide—and every other major country is rushing to ensure that its auto industry survives until better days.

Daimler (DAI) has made some cash payments to its European dealers to keep them functioning. Volkswagen (VOWG) has applied to tap Germany's $650 billion bank bailout fund. The British government worked on a plan for the survival of the country's automakers last weekend, while the China Export & Import Bank lent $1.42 billion to Chery Automotive to keep that company afloat. The Swedish government will give $3.5 billion to stabilize both Volvo and Saab. On Tuesday, President Nicolas Sarkozy of France said he would move to save the auto industry, and the Canadian government has already committed to adding 20% more in capital for Detroit over whatever figure Washington might come up with. Canada added that it would do whatever is necessary to avoid a "doomsday scenario" for the industry. Ain't that a kick in the backside? Canada is willing to match one-fifth of what America contributes to save Detroit, while certain elected officials in the U.S. are doing everything in their power to end the Big Three's existence.

It seems to shock people, including the many reporters I've spoken with who are covering this event, but it's true. Auto companies are in trouble all over the world, but except for America they are getting immediate financial assistance. This turns the rationale that only Detroit is having problems—and therefore should be allowed to go belly-up.

Incentives Madness

For some time, I've written that for Detroit to survive long-term the supersized incentives would have to end. Contrary to what the "union labor" bashers howl, it is the size and frequency of those rebates that keep Detroit from profiting on the vehicles it builds. In the interim, the incentives have gotten even crazier, but this is part of the endgame.

Just a few examples: Last week General Motors (GM) upped the rebates on the already popular Chevrolet Malibu to $4,250 and added another grand on the Impala's.