When you were a kid, perhaps in order to make enough to buy a 45-rpm record you set up a Kool-Aid stand.
Let's say you had grape and cherry. And let's say that between the local kids and the well-meaning adults who ventured by, the grape gets gulped. So you convince your mom to let you make more grape. Meanwhile, the ice in the cherry is melting. . . .
If the grape is really selling, you might consider bumping the price up a nickel. The way the cherry isn't going, you might consider knocking the price down by the same amount. What you probably wouldn't do (remember when you had to add all of that sugar and how your mother's initial delight at entrepreneurship gave way to a pained look as she saw that bag of sugar disappearing?) would be to make another pitcher of cherry just because you happened to have another package in the kitchen.
Seems sort of simple, doesn't it?
OK. So here we sit in an environment when its cars not Kool-Aid. The Big Three are facing a situation wherein they are seeing demand for many of their cars and trucks going the way of that cherry-which is not going at all. This condition is not as widely shared by many of the Non-Traditional (e.g., Toyota, Honda, Nissan, BMW) manufacturers, though they may be experiencing softening in demand for particular models.
If you have grape, you can make money. For example, the Chrysler Group may have big woes, but right now, with the PT Cruiser, they have the hottest thing going. If there wasn't a capacity constraint, they could be moving them out the dealer doors faster than you could sling grape Kool-Aid on a 95° day in July. But there's the constraint.
So what's the problem that the industry faces? Sure, there is likely to be a reduction in the number of units sold in 2001 as compared with 2000. But does anyone remember that in 1995 the overall sales were just 14.7-million units? There will be some manufacturers (and Toyota is one of them) that think that 2001 will be a good year, not one of retrenchment at a lesser position. A 16.5-million year is a solid year-or at least it will be for some manufacturers.
That's because those manufacturers have what customers want. And if they don't have it, then they're doing their damnedest to make more grape without producing more cherry and being forced to offer incentives to move the unpopular offering.
Yes, I know, building cars is a whole lot more complex than stirring up a batch of Kool-Aid. But do you know what: the supply and demand scenario works just about the same way.
