Despite the upcoming oil shortage, the government is giving a special tax cut to businesses that purchase large trucks and SUVs. If gas prices are going to keep climbing, auto makers will have a harder and harder time selling these behemoths. So why don't they sell more smaller cars instead? Because big SUVs are the only vehicles that make a profit.
Dan Lienert writes for Forbes.com that automakers lose money on cars that sell for under $30,000. This information is hard to come by: "At one time, we did have info from the dealers on what they sold," says Mike Greywitt, of J.D. Power and Associates. "They were indicating how much profit they were making on each car. It's not being made public now."
Why the secrecy? Auto makers don't want you to know that you're paying top dollar for something that's essentially a fancy version of a much cheaper car. The bigger, higher-priced vehicles are made from the same mechanical underpinnings, or "platform" as cheaper vehicles, in order to cut costs.
Ford's Lincoln Town Car is the same underneath as a Ford Crown Victoria or Mercury Grand Marquis, but Ford sells it for $20,000 more. General Motors uses its Chevrolet Silverado pickup as the basis for the more expensive Suburbans and Tahoes. A Lincoln Navigator makes around $20,000 profit although it costs about the same amount to build as a Ford Explorer or F-Series pickup.
Options, such as navigation systems and leather seats, are where carmakers really get their profits, because they have a 100% markup. Hummer makes an average of $1,300 on the accessories in each vehicle. The Chevrolet Silverado pickup has a base price of $18,936, but the average price goes up to between $37,000 and $40,000 because of options.
Small cars, like the Chevrolet Malibu, retail for about $18,000, but dealers are selling them for $13,000. The Dodge Intrepid is priced so low it probably doesn't make any profit. There's a lot of competition at that level from foreign cars, so car makers are under pressure to price them low.
But while Americans love luxurious options, they hate paying a lot for gas, so they'll eventually be forced to dump their dinosaurs for smaller, cheaper cars?which is why automakers are scrambling to sell them off fast. They want to put a big SUV or truck in your garage before you catch on to what's going to happen to oil prices in the future.
It's amazing how many people have UFO experiences while driving their cars?often along with other passengers.
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