Over the past few weeks, investors in used car dealers such as CarMax (NYSE:KMX) received reason to hope that better times were on the way. The Big Three U.S. automakers were coming to their senses, it seemed, slashing production of new vehicles and cutting back on incentives offered on cars already produced. If that were to continue and new car prices started to inch back up, why, consumers just might start considering buying used again!
Not so fast. Looks like Detroit's self-destructive ways are back.
Need proof? Yesterday, General Motors (NYSE:GM) beat its own previous personal best for crazy sales incentives (read about those here) and went for broke, instituting a "Red Tag" sale and bumping incentives on some 2004 models up to -- better sit down for this -- $7,500. And this is not just some gimmick to move the last few 2004 models off the lot, either. The company is apparently also offering rebates of up to $4,500 on select 2005 models as well -- considerably more than the average $3,500 in incentives (on both 2004 and 2005 models) the company offered in November.
So to recap where GM stands right now: Toyota (NYSE:TM) and Nissan (NASDAQ:NSANY) are already eating away at its market share, plus both Japanese rivals are making moves to assault its bread and butter full-size pickup division. Steelmakers from U.S. Steel (NYSE:X) on down are raising prices on one of the main ingredients needed for baking up any car recipe, while the price of substitute materials such as Alcoa's (NYSE:AA) aluminum rise in tandem. Meanwhile, GM has joined a battle with Ford (NYSE:F) for the title of best-selling car brand in America.
And the best solution that GM can come up with in answer to this perfect storm of bad news is to slash its prices (at the expense of its worst-in-the-industry profit margin, no less). It's brilliant ideas like this one that earn GM's top two executives a combined $15 million paycheck every year.
Depressed yet? Ready for some news about a carmaker with a future? Try:
Fool contributor Rich Smith drives a '98 Chevy S-10 but owns no shares in either GM or any other company mentioned in this article.
