Pricing Lessons from the Detroit Bailout Fiasco

With consumers shunning gas-guzzling SUVs and easy financing gone the way of $1.00/gallon gas, Detroit is in trouble. Some people have called for government intervention. Others have suggested that the best thing to do is allow the big carmakers to go bankrupt. (Mitt Romney managed to do both, naturally.) The policy debate aside, what pricing lessons can we draw from this debacle?

First, if you don’t understand what customers value in your car market, you are in deep trouble. The Big Three carmakers are called carmakers for a reason. Their primary market is cars. However, the massive profits from trucks masquerading as SUVs covered up for a lot of sins. With a few exceptions, Detroit didn’t make cars that people really wanted. Unlike Toyota and Honda, which managed to make Corollas, Camrys, Civics, and Accords perennial best-sellers (and money makers). Fixing this is about fixing the culture at the Big Three, which could take volumes.

Second, if you look at a report of your promotions over time and you see a line that goes up over time, that should be a big red flag that you have to deal with point number 1.

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