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Wednesday, September 06, 2006

Detroit Ostrich Farm: Rebates Come Again

Stocks: (GM)(F)(DCX)(TM)(HMC)

Now that Alan Mulally has left Boeing to skipper the Titanic over at Ford, one would hope that some of the insanity would be wrung out of Detroit’s thinking about how to get back in the car game. But, like the B-52 pilot wearing a cowboy hat who rides a nuclear bomb as it is dropped on Russia in the 1960s movie Dr. Strangelove, management wants to end their world with a bang.

Rebates. We must have them, no matter how much money we lose. And, if that does not work, spend the money and cut the margins with extended warranties. According to the Wall Street Journal, GM will announce its new extended warranty later today. If the cars worked well enough, one would think a better warranty would not count for much, but you can never be too safe.

Detroit seems to shy away from the fact that, at some point, its cars must sell themselves when put side-by-side with a Toyota or Honda. They have to be fuel efficient. They have to require little or no repair work. The doors must fit and the engines must go.

Studies from JD Powers and Consumer Reports indicate that Detroit is gaining ground on Japan in the car quality derby. But, the US manufacturers are still behind. Couple that with fleet that are less fuel efficient and you have the kind of rout that has put Toyota even with Ford in US vehicle sales. And, gaining on GM.

Extended warranty’s will cost GM something. They may never say what. But, it could cause an escalation of incentives at Ford, and maybe Chrysler.

Keeping up with the Jones, no matter what it costs.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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