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The High Cost of Low Performance

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From LesleyB, Featured Contributor
Posted on July 8, 2008

What will happen when Wal-mart puts Detroit automakers out of business?

Although the news went largely unnoticed, Wal-Mart CEO Lee Scott announced in early 2008 that Wal-Mart has held talks with automakers about selling gasoline-electric hybrid cars and plug-in automobiles at its stores. Since then, the price of gas has increased by 40%, there's been a major shift towards fuel-efficient and hybrid cars, and there have been no further signals from Wal-Mart on the subject.

It makes perfect sense for Wal-Mart to enter the automotive market in the U.S. It's the biggest retail sector, and Wal-Mart only does big. The sector is also in flux, with a shortage of hybrid and fuel efficient options, and no indication that U.S. automakers will be able to address this anytime soon. People are ready and waiting for new options.

Does anyone want to take a bet that Walmart can manufacture and market an inexpensive electric car faster than GM can get the Volt ready for mass production? Didn't think so.

It's no secret that Wal-Mart offers low prices by paying almost nothing for its goods. That's why I can buy a pair of jeans for six dollars there and Walmart still made over three billion dollars in net income for the first quarter of 2008. This means that most of the goods sold at Wal-Mart are manufactured in China and other developing economies where suppliers pay very low wages to the workers who make them. Since Wal-Mart customers never see these factories or the lives of these workers, this has proven to be little more than a pesky PR problem that surfaces occasionally, but not something that's going to force Wal-Mart to change the way it does business.

So who are the automakers that Wal-Mart has been talking to? It's a safe bet that none of the Big 3 are included in discussions. Any automaker that has a dealer network in the U.S. would likely not begin discussions with Wal-Mart because of these pre-existing agreements. A more likely scenario is that Wal-Mart is working with Chinese car manufacturers who do not have distribution channels in the U.S. and can produce things for very low cost.

Doesn't this scenario present the ultimate, and perhaps final, challenge to 'buy American' sentiment? Despite the mis-steps of the Big 3, American-made cars cut right to the heart of who we are and who we were as a country.

It's a losing battle. American's have pretty much given up buying American everything else, as long as there is American branding that goes on the packaging. Case in point: Wal-Mart, where almost nothing is American except for the customers and the people who pocket their money, is our national retailer. It's pretty clear that in the choice between low prices and supporting a local economy, we will pick low prices. In the case of a new hybrid or electric vehicle being marketed by a trusted retailer, I don't think that even loyalty to America's last great industry will stop a lot of people from buying it.

Will this actually happen? Only time will tell. But if it does, I guess I'll see you at Wal-Mart. We'll probably both be working there.

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LesleyB is a featured contributor for vLane.