Thursday, December 4, 2008

Credit and the US Auto Industry

We all know how badly managed the US auto industry has been, willfully oblivious to the obvious: that huge demand for big trucks and SUVs were not going to last forever and that fuel efficiency was not the the enemy. If they had spend half the time, energy and money into design, R&D and engineering that they devoted to ensuring protection from Washington they would probably not be in this mess (or at least not nearly as bad off).

We also know that they represent a pretty significant part of the manufacturing base in the US, especially with all of the links to suppliers. This makes a pretty compelling case for the government coming to their aid.

But is their trouble all their own fault? It can be argued that the credit crisis hurts their industry much more than most because of the fact that most auto purchases rely heavily on credit. Since traditional consumer credit sources have dried up (including home equity lines of credit), it is possible for them to argue that they are in a special position as sufferers from the credit crisis that the government allowed to happen.

I don't know how much water this argument holds, but I have been interested that this point is not being made much. One thing is for certain, the US auto market has cratered. Above, from Econbrowser, is a chart of US domestic car sales. Look at how far off are current year sales to previous years. Ouch.

1 comment:

Jeff said...

Good points -- also, the comparative advantage of domestic automakers has been in pickup trucks.

The economy of the U.S. for the last 5 or so years was mainly construction, it seems. Constuction folks bought a lot of pickups, and this was the domestic automakers' cash cow (along with SUVs).

Now residential and commmercial development has evaporated, and no one can afford a new truck.

They are also less 'cool' as personal transportation nowadays (except maybe in Texas?).

The rise in gas prices last spring was the final nail in the coffin.

The domestic automakers actually have a lot of good small cars, but does anyone care anymore? At least those with money to buy?