Car manufacturers make very little money on maintenance. Clearly they should sell cars and not maintenance.
This statement doesn’t make a whole lot of sense and is not supported by history. First, for many people cars and trucks are the second biggest or biggest purchase of their lives. If they have a choice between buying a car from a manufacturer that provides maintenance or not, they’ll pick the manufacturer that provides high quality or some maintenance coverage. This happened in the sixties and seventies, the so-called Malaise Era of car manufacturing, when the big three American car companies made terrible vehicles and imports stole their business.
Second, it may be illegal. The NHTSA has the authority to force a recall when a product is shown to have a safety defect. This can happen many years after manufacture. These recalls aren’t optional. If a car manufacturer doesn’t maintain the capacity to fix an issue, the manufacturer would either have to hire someone to do the maintenance, buy the car back, or endure innumerable lawsuits. The most likely outcome would be some combination of all three.
Third, people have long memories for bad products. These memories reach much longer than the preferred business cycle of a car manufacturer and influence buying decisions many model years later. A vehicle that’s easy to maintain remains, the customer may build an attachment to it, and that influences later purchases.
For all that the profit on selling cars is frontloaded for the manufacturer and costs of maintenance are a long tail, not supporting this tail is a highly negative choice for the manufacturer. It is no coincidence that Apple is an extremely profitable company because their products don’t last very long. The average life of an iPhone is 4.25 years. The average car on the road is 11.9 years. Toyota rightly warned Apple about this long tail. Car manufacturers must support this unprofitable side of the business to stay in business. It’s like having a bathroom for a sit-down restaurant. It’s not a profit driver, but if you don’t do it, you won’t have a sit-down business for long.
It’s also like offering long term bonds for a nation-state debt issuer. Those bonds are more expensive than short term bonds and have higher risks for the issuer. Bloomberg recently considered what would happen if the Treasury stopped issuing long term bonds. It would be great until people stopped buying short term bonds.
One driver into Chinese bonds right now is the reach for yield. Why do people buy bonds from a nation-state with a spotty record on liquidity, human rights, and serious debt problems? The yield is high. But money isn’t perfectly fungible, and the more yuan people hold, either in bonds or cash, the more yuan they have to spend. Thus they’re more likely to spend yuan. People buying yuan-denominated bonds support the Chinese economy.
The US enjoys the exorbitant privilege of being the world’s reserve currency. Even though the EU is bigger in terms of market size, the US debt market is deeper because people search for yield. The EU has problems developing a bond market for companies because bonds in the EU don’t pay anything, so investors aren’t interested in buying them. Bank loans pay interest, so investors (banks) delight in making them. Try as the ECB might to shift investors over to a bond market, they can’t bring the investors over because the yield just isn’t there.
In the US, bonds pay. As a result, we have a deeper debt market. Every US bond is a USD denominated security, which strengthens the US market for other things, cars, computer services, etc., exactly as the Chinese market does and the EU wishes their market did. Paying a yield on long term bonds isn’t wasted money; it’s the cost of the exorbitant privilege the US enjoys.
Put another way, the long costs associated with long term bonds, 10+ yrs, are very similar to the costs of providing maintenance for a car manufacturer. It may not be profitable, but if the Treasury cuts it out, cheap borrowing will evaporate.