Why do automakers insist in keeping overaged models in line?
In times of ever-growing demand for novelty and production cycles tailored to comply with that, even costs are no longer a valid reason not to let go
All investors want to maximize their profit. Some pursue that goal through working in multiple lines of action at once, others research a lot in order to find something new to offer, and there are the ones who prefer to hold on to their proven cases of success. As you might’ve imagined, the latter are, by far, the most conservative bunch. And the automotive world is filled with good and bad examples of all types.
While car models can be extremely profitable products, they’re also highly expensive to concoct and sell. There are countless demands to comply with, such as quality standards and regional preferences, and several goals to reach through marketing actions. Investing in all that is the very reason why they’re profitable at all, so that high profit actually comes only after some time. This leads us to this article’s topic: how old is too old for a car?
Which demands are those, exactly?
Cars are required to meet standards regarding safety and emissions and, on the other hand, are always expected to impress when it comes to style and performance. Automakers have many ways to do all that, but costs will always be an issue. Technology is very helpful to deal with them, but there’s also a cost to develop it: modular platforms are a great example of that. They save time and money to create new cars, but are highly expensive to develop.
As if that wasn’t enough, it’s necessary to deal with marketing issues. There are specific laws in some countries, people’s emotional preferences change all the time, the market can be more or less conservative… not to mention that some car models are expected to help steer the company towards a particular direction. The only way to comply with all that is through extensive research and development, which requires even higher investments.
What does that have to do with car age?
The aforementioned expenditures are named “investments” because they’re expected to return to the company — with profit, of course — once the car model goes on sale. The thing is, that effect takes time to happen and this time is highly variable. It depends on how much was invested, how much is the established profit margin, how well the car sells and, the reason why you’re here, how long the car stays in the market.
In short, the longer a car model is offered, the more time it’ll have to make money. However, if you come to think… do you know anyone who actually likes outdated products primarily because they’re outdated? It’s also true that, the longer a car model is offered, the less desirable it becomes (bear in mind that classics are a whole different thing). Balancing all that is one of the challenges big automakers face all the time.
How does that work in practice?
After covering production costs, the money brought by selling a given car model is used to slowly return the investment made in the first place to develop its project. Once that is finished, anything else that comes is pure profit. As a result, companies actually need some old cars in line, otherwise they’d have an excessive amount of invested money yet to come back through sales.
On the other hand, it’s easy to figure why cars don’t stay in line for too long in reality: people stop wanting them. Their design becomes outdated, their powertrain becomes obsolete, they don’t get updated with the latest technologies, and new competitors arrive solving at least part of those problems. If the aging model doesn’t get progressive price cuts, the whole situation gets even worse.
And how can that be countered?
Pretty much by trying to revert the aforementioned problems. Makers don’t simply replace models all the time because they’d return to that cash-flow problem described a few paragraphs ago, so they resort to partially improving the existing ones, usually design-wise, and gradually making their prices more attractive. Some models stay in line for around twenty years thanks to that, especially low-cost ones.
The thing is, at some point, the desirability issue overcomes the cost issue. Over the years, people and media start criticizing the model more and more so, from the maker’s point of view, keeping it in line goes from profitable to indifferent to actually undesirable at times — or, at least, it should. The best automakers still do everything they can to delay that last moment, but also accept that it will always come.
How do aging cars become undesirable?
If the model’s platform is being phased out, keeping it in line forces the automaker to keep old machinery in use and exclusively for those few aging models. In times when companies do everything they can to optimize their processes, the more separate lines they use, the more their total production volume lowers. That has direct impacts on how expensive it is for an automaker to produce a given selection of models.
Moving on the desirability problem, no company enjoys having people and media trashing and joking about its products; that’s particularly harmful when the company is going through any process that involves redefining its image. At some point, the aging model starts to negatively affect its image more than positively affect its finances, so it becomes more interesting to cease its production.
And when would that moment be?
That’s the million-dollar question. In the past, companies would pretty much forget the model in line until its sales figures became too low to be interesting. In nowadays, the intense use of social media is strengthening the connection between people and the specialized media, so all image-related issues can reach worrying proportions much more easily.
The most important takeaway here is that, as mentioned in the beginning of this text, costs are no longer the only important criterion to consider here. People’s demands are changing and so should companies’ actions. Keeping overage cars in line for the pure sake of profit is doing more harm than good and not only to the maker’s profits. This is why some are already looking for new solutions.
New solutions such as…
Designing cars in ways that provide the expected return earlier, whether through increasing their revenue and/or reducing their production costs. Companies have devised many ways to do that, of course, but they need to step up their game in nowadays because people and media want more and more. And if one company fails to deliver, there will always be many others ready to do so.
Next time you’re looking for a new car, pay attention to how long it’s been on sale. Even if price is your single priority, the oldest model available is hardly the best option in nowadays. In general, newer ones will give you much more regarding comfort, fuel efficiency and safety without charging unreasonable prices. Besides, you’ll be helping encourage the car market as a whole to keep rising its standards.
