It’s the end of an era in transportation and design: the final Volkswagen Beetle rolled off the Puebla, Mexico assembly line today. In response to disappointing sales, Volkswagen is discontinuing the car and focusing their efforts on the ID.3.
Volkswagen’s decision to discontinue the Beetle is just the most recent example of what the economist Joseph Schumpeter called “creative destruction.” It’s the stuff of economic progress in an innovation-embracing society. New methods and new products replace old methods and old products.
This raises an important question. How would we know whether or not Volkswagen chose wisely or chose poorly in deciding to discontinue the Beetle? This is where free markets are so essential: they provide crucial information—profits and losses—that tell firms when they have chosen wisely and when they have chosen poorly.
In other words, profits and losses tell firms whether the “creative” part of their enterprise outweighs the “destruction” part. In the eyes of the consumer, anyway.
The decision to discontinue the Beetle is also an example of what the economist William Harold Hutt called “consumer sovereignty.” Consumers, ultimately, are the ones who call the economic tune, and it appears that the car-buying public has voted for a world that doesn’t include new Beetles.
Think for a minute about what would have happened had Volkswagen management decided to ignore their customers’ wishes and press onward with Beetle production, perhaps out of concern for the people working at the Beetle manufacturing plant or because of their aesthetic convictions or because they think that people should want Beetles.
Maybe Volkswagen would still sell a lot of them. Maybe they’d sell enough to cover the costs of the raw materials, the labor, interests payments, and so on, but they would actually be wasting resources and serving consumers poorly. Maybe they create value by making Beetles, but maybe they could create even more value for car buyers by making something else. That appears to be exactly what they have decided.
It’s entirely possible that discontinuing the Beetle was a terrible mistake. Business history is littered with absolute disasters like New Coke and the Ford Edsel and lesser failures like the Apple Newton and the Microsoft Zune. It appears, however, that customers have spoken and that they would prefer a lot of other things to new Volkswagen Beetles. Time—and the profit and loss test—will tell whether or not Volkswagen heard them correctly.
Catalyst articles by Art Carden | Full Biography and Publications