Yesterday, Chrysler announced it was going to suspend production at ALL of its North American factories until mid January. This was excellent news – for those of us who believe business is a rational process of allocating scarce resources to meet consumer demand. Others may think it’s just a political ploy to get politicians to fork over taxpayer money for the “poor, hardworking (?) UAW laborers” who will go be furloughed over the holiday. Regardless of your stand on the auto maker bail out (would just one new outlet please interview Honda or Toyota during this debate?) there remains a solid, clear lesson for the real estate industry within Chrysler’s decision to halt production.
Chrysler is learning the iron law of value:
If you can’t create products the consumer wants, then down your factories and repair your Brand until you can.
Translated for REALTORS: If you can’t put listings on the market at the right price, then stop listing more homes.
Chryslers aren’t selling because they are necessarily worse cars than Hondas or Toyotas. Ok, fine: They are worse cars. But “worse” isn’t a factor of manufacturing quality – it’s a factor of VALUE in the minds of consumers – compared to OTHER similar commodities. Chrylsers are worse because their brand is worse than BMW’s or Honda’s brand. Not the price – because Chryslers sell for less than BMWs. If, as the auto manufacturer claims, people aren’t purchasing Chryslers today – then Chrysler’s job is to LISTEN to the consumer and take actions accordingly. If this means halting production of un-wanted commodities, then Chrysler is doing the right thing shutting down their plants. Stop; take a breather; fix your brand by creating better products; then re-enter the marketplace. Under normal circumstances, this is called a Chapter 11 Bankruptcy. But in the It’s-Not-Your-Fault-You-Suck-Twenty-First-Century-America, it’s called a ploy for sympathy and unearned money from taxpayers (who likely bought a Lexus during the Christmas sale).
But let’s stay on the test track. Look at the lesson: The public is telling Chrysler – we won’t buy your cars because we think your value is tarnished. Chrysler can’t turn a profit on the manufacture of its cars – certainly due to inefficiencies and bad labor contracts – which the public knows and may play a part in the decisions of the consumer to choose other brands (they would for me). Nonetheless, the central fact remains that Chrysler’s business plan called for a constant, high number of sales to “paper over with cash flow” their inefficient uses of materials and labor in the marketplace. Sound familiar?
The unsound business scheme (should we say Ponzi?) finally blew up; just like a decade of unsound real estate business practices. And not just because of internal efficiencies – but because the consumer said, “Forget it; we’ll buy a Honda. We like to work with companies who make products at a profit – because that means there’s real value in the commodity.” Consumers like profits because profitable organizations have positive brands and positive brands have FUTURE RESALE VALUE which is a key element in purchasing an automobile you will someday trade or resell.
Chrysler should be praised for making the right – and hard decision – to pull from the marketplace its horrendous use of steel, rubber, cloth, and labor – hopefully in an attempt to reconfigure its factory output. At the least, with the understanding that if it can’t do it, it should release those resources to other companies who can.
Now, back to the real estate story: Chrylser’s decision reminds us that, at some point, the absurdity of putting un-sellable commodities with no value to the consumer into the marketplace penetrates even the biggest egos and “marketing brands” of an industry. That’s an important lesson the real estate industry needs to learn – no matter how much of it’s own marketing hype it believes. Even the biggest, bestest, coolest-since-croutons-replaced-sliced-bread REALTORS out there need to realize that they are destroying the marketplace (and their own profits) by continuing to put overpriced listings on the market. No more excuses that foreclosures and distressed property are flooding the marketplace. There are PLENTY of JUST-LISTED-BY-A-REALTOR properties added to the market every week – and they continue to add un-wanted commodities to the inventory – because they are brought to market with no value.
Like Chrysler, self-deceiving REALTORS must ultimately learn a hard economic lesson. The laws of supply-and-demand – and consumer choice- apply to them as well, no matter how many “awards and designations” they have pinned on their Admiral’s uniform. No amount of postcard, calendar and magnet marketing will convince a buyer that an overpriced property will offer a good resell value in the future. Even representatives of stalwart “brands” will find their value proposition rusting like an old Chrysler bumper when buyers tour the lots (called open houses) and see row after row of un-prepared, overpriced homes.
Along the way, many brokers will find themselves just like Chrysler dealers: stuck with mounting expenses from trying to market un-wanted inventory hoping un-skilled salesmen will break out of the “union rules” of working when they feel like it. Like Chrysler’s mis-management, so too must many brokers take the blame of their own mistakes, as they ultimately signed-off on the mis-priced (mis-manufactured) inventory that came off of production lines operated by workers who resisted technology, innovation, training and accountability rules. Real estate companies will try everything – from fire sales to rebates to government loans and tax credits – yet they will find that it’s really not a matter of price that is keeping consumers on the sidelines.
For proof, we can find today plenty of sales in both auto and real estate industries. Toyota sold less, but plenty, of cars this year; so did many REALTORS sell fewer but sufficient homes. The message is that the market continues to work; and buyers continue to have the money and willingness to trade it when they see products of value. Virtually no buyer of automobiles today required a government subsidy to make his decision to purchase a properly priced, high-future-value product from BMW (who actually raised its prices this year). While billions of government dollars, fake interest rates and bank insurance programs still can’t get buyers back into the housing market.
If the real estate industry wants to correct its problems, it needs to look at the production side – not the consumption side. The consumer has already told REALTORS what they need to do: Put better homes at better prices onto the market. Most agents and brokers of the industry continue to ignore this message, listings anything from anyone who calls at any price because it might lead to any check. In reality, it’s leading to no checks, for most agents. All things being equal, the real estate industry should be selling vastly more homes as prices drop than when they soared due to inflation. Something else is seriously wrong – in the form of unwanted inventory – when the products sit on the lot like so many un-wanted Chryslers whose brokers insist it’s still a great time to buy a car.
Consumers know it’s a great time to buy a car – and a home. Perhaps they just wish they could buy a home from Honda?