Economics & Finance

Car Dealer Economics

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Recently I purchased a car and came face to face again with the befuddling economics of car dealerships.  My brother, who is an expert car negotiator, helped me out a lot doing research and negotiating with them in the crazy, we-aren’t-ever-going-to-see-each-other-again style necessary not to get ripped off at the dealer.

The car dealership that we were working with had masses of cars on his lot.  A co-worker of mine said his buying power was increased because while he was haggling a big rig came onto the lot full of cars to unload and it was so packed that there literally was nowhere to put the newly arrived autos.

While every other industry in the world seems to be moving to a just-in-time model or some sort of centralized distribution warehouse (Amazon), the car dealer industry uses the sad, old-fashioned methods of packing their lots with autos and then cutting each others’ throats to get an incremental sale.  Rather than having the exact car you want by having you order it and wait for its arrival (BMW still does this, at least according to a friend of mine who recently bought one, and Scion does this, too) – my dealer just tried to sell me the closest one to what I wanted on the lot.

My brother, being a crazed car buyer, actually uses the technique of 1) determining the car you want 2) asking for a different, similar car to what you want that you KNOW the dealer doesn’t have on the lot 3) threatening to walk away because they don’t have the car that you knew they didn’t have in the first place and instead having to “settle” by having them offer you to take the car you wanted in the first place, for a discount.

One major problem with this methodology is that the car buyer (me) leaves this experience with a terrible feel for the brand rather than a positive view, based upon interaction with the dealer.  This sort of marketing is suicide given that a repeat customer is critical to the long-term success of a car brand.  The second major problem is that having all this inventory on the lot causes all the dealers to drive down prices since they need to move these cars quickly which isn’t the most profitable outcome.

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It’s easy to have a disciplined euro, but nobody would want to join.

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Reading Gerard Baker’s speculations on Germany leaving the euro I got somewhat bored halfway through. The solution was as obvious as the fact that Mr. Baker, and perhaps most of Europe’s luminaries, are blind to it.

Europe is a hodge-podge of buried irredentist sentiment and maximalist territorial dreams. Do you want Greek discipline in paying its debts? No problem, force it to put up the islands that Turkey has wanted for a very long time and suggest that insufficient fiscal discipline will lead to an auction sale of the territory collateral complete with loss of sovereignty. Not only will this instill fiscal discipline in countries that have to put up parts of their own territory, it will induce their neighbors to save up “wishful thinking” funds to bid the real estate up high enough.

Is the UK spendthrift? Have them put up Gibraltar as collateral and watch the Spanish suddenly start saving like mad in hopes of an auction. No doubt Moroccan finances would tilt towards fiscal surpluses as well.

The utter national humiliation of dismembering your own country to finance social spending should set things right. And if not, well, other hands would take over their country’s ultimate assets, national sovereignty.

The Myth of Alternative Power and Hydroelectric Storage

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Every time I get into a debate about “alternative” energy I point out it can’t be used for baseline power because it can’t provide reliable power, and it can’t provide reliable power because you can’t store the electricity that it episodically generates.

Immediately, someone will say, “We can use hydraulic storage!”

Hydraulic storage is basically a hydroelectric dam on a small or large scale, except instead of using water brought by a watershed, the water is pumped up behind the dam with pumps powered by the generator whose energy output you want to store. For example, you would have electric pumps powered by solar panels or wind turbines, the idea being that when the wind or cloud-free days produced a surplus of power (or you built in surplus capacity) the pumps would pump water from a lower reservoir uphill into a higher storage reservoir. The electricity would be stored as the potential energy in the elevated water. When you needed the power back, you would drain the water back downhill through turbines just like a hydroelectric damn.

Now, this certainly works and it has been done on a small scale. However, it will never, ever be a real-world, large-scale solution that can make alternative power work.

Why? Well, let’s just do some back-of-the-envelope calculations.

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Oil: The New Tobacco

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John Gapper,writing in the Financial Times about Obama’s arm twisting-of BP to put $20 billion into an “escrow” fund:

It has echoes of the 1986 tobacco settlement in which industry paid $246bn to states following legal action by their attorneys-general. Only 5 percent of that money was spent on tobacco-related initiatives with Virginia, for example, investing in higher education, fibre optic cables and research into energy…Willie Sutton, the robber, sagely observed that he raided banks because that was where the money was, and US politicians know this lesson well.

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The tactics of Congress and President Obama against BP are reminiscent of tort lawyers, who are big funders of the Democrats.

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Drawing From The Well A Few Times Too Often

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I thought everyone here would like to have a little glimpse into the French national pension system.

The news item linked to above is both short and written in English. Click the link and read the sidebar for a few thumbnail facts concerning who gets a pension, and what kind of money they can expect. A comparison to Social Security in the United States is not a futile exercise.

What I found interesting is how French workers with private sector jobs have to make do with 50% of their pay, and the base figure is found by averaging the 25 top earning years during their career.

Public sector employees, by contrast, receive 75% of their pay, and the base figure is found by averaging the last six months of their career.

It seems that this is inviting fraud, as I would certainly try my best to work as much overtime as possible during that last six months. Inflate the pay and get a better pension than I deserve.

Those who avoid sucking at the government teat are shafted in a lot of other ways as well. Private sector employees have to give up over 10% of their pay in order to fund the pensions, while government workers are only taxed less than 8%. Pretty good work if you can get it.

Read the whole thing. Like I said, it is short and to the point.