Vol. 1, Issue 31, December 16, 2003
Dr. Watson Cures All.
Perplexing Times

Wal-Mart Enters Auto Industry

Wal-Mart Stores Inc. has reinvented the world of discount retailing over the past two decades, and has most recently remade the the grocery business. The Bentonville, Arkansas behemoth started selling food in 1988 and became the nation's largest grocer last year, with more than $53 billion in grocery sales. By selling groceries in at least 1,258 supercenters, 180,000-square-foot grocery/discount-store combinations, Wal-Mart has demonstrated its ability to dominate virtually every market it has entered.

The announcement last week then that it is entering the automobile retailing business has the nation's car sellers worrying.

"We were looking at our share of the U.S. economy, and we were troubled by the fact that entire sectors are free from our grasp," said Wal-Mart Executive Vice President Charles Randolph. "We figure if Ebay can corner $2 billion of the automobile market in just a few years, we should be able to do pretty well ourselves."

Wal-Mart has made its mark by relentless cost-savings efficiency, often pitting suppliers against each other. It is the largest retailer of any kind in the United States.

"Well, I suppose it was only a matter of time before this happened," said Stanford Economics Professor Mark Bader. "But that's not to say people are going to be happy about it."

The nation's largest automobile retailers had mixed reactions to the announcement.

"Wal-Mart sells cheap stuff," said CarMax regional supervisor Audrey Resnick. "I mean they're not going to start marking down Mercedes or anything. They can sell all the Kia Sedonas they want, as far as I'm concerned."

However, others note that Wal-Mart has proven an unusually resilient adversary in markets where it was not expected to succeed, such as the retail grocery market.

"I would suspect that the corporation entered into arrangements with one or more of the Big Three before making this announcement," Bader speculated. "Maybe Ford is desperate enough to create a Wal-Mart exclusive version of some flagship brands, like an F-75 instead of the F-150 or something."

Wal-Mart has not revealed details of its initial sales plan, saying only that it will begin sales at fifteen new sales facilities by early 2004. However, internet rumors abound asserting that Wal-Mart has struck an agreement with the Serbian government to reintroduce the Yugo, as "ZMW," for Zastava Motor Works, as a house brand.

"Wal-Mart could sell those things for less than $5,000," said Bader. "If they offered their standard 90-day money-back guarantee, that would make things interesting, wouldn't it."


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