Car Focus

It is the time of year when the new automobile models are being introduced and as usual I find myself looking to read everything I can about the new models.  I have been fascinated by cars since I was a young kid, and only later on did I realize how important the automobile industry was to the American economy.  Now I am not a believer that whatever is good for GM (or Ford of Chrysler) is good for the United States, but I do believe that the American car industry doing well is inextricably interwoven with the American economy doing well.

For many years, the greatest excitement about the new models being introduced was reserved for foreign cars, for the most part those cars imported either from Germany or Japan. And the reality was that I was part of the foreign car bandwagon.  American cars didn’t excite me and more importantly, I just didn’t have a sense that they were as durable or well designed as the German or Japanese cars. Now American cars are at the top of the list in almost every category.  The new Corvette, the new Impala, the new Cadillac CTS, the new Jeep Cherokee, the new Ford Fusion are all the best of breed; tested continuously and praised for all they represent and for all the value they provide.  And because American cars are so good at doing what they should do, it is no longer unusual to see American cars well represented in important foreign cities.  Beijing and Buick is the best example.

In many ways, the higher education industry is in a similar position.  American higher education is respected at home and around the globe. The impact of higher education on the economy – taking into consideration all levels of public and private education– is huge, and here too, the American economy doing well is dependent on higher education continuing to do well.  We need to be relevant, we need to be reasonable, and we need to be a good investment in the future.  Foreign competition continues to grow but in almost every area, our education is still the most sought after.

At times, for the automobile industry, economic incentives have been key to the public’s purchase of automobiles.  No money down, very low interest rates, low leasing rates, and discounts off the sticker price have all made a difference.  Discount rates are key to higher education purchases as well.  Either scholarships or well below cost public tuition provide the same, price cutting, economic incentives.  As the economy improved and as cars improved, the automobile industry was able to reduce the reliance on price incentives.  In higher education, we are still struggling with how to come to grips with price incentives.  And what makes it especially difficult is that public institutions may have exactly the same cost structure but because there is a subsidy from the state where the public institution is located, public institutions do their discounting up front and visible for all to see.  Imagine higher education, if Ford were a public company with a permanent subsidy for all Ford purchasers.  What would GM and Chrysler do?

I know many of us – especially in the private section– are looking for ways to reduce the increasing reliance in higher education on discounting to attract students.  Since it is no longer unusual for a private institution to approach 50% in the first year discount rate, the pace of discount rate increases by definition will slow down.  But unfortunately, I don’t see a workable solution for phasing out what so many of us have become dependent on.