Tuesday, January 06, 2009

Auto industry just now getting a clue...

...about something we discussed over a month ago, I think it was - namely, that the auto market was oversaturated to begin with, and in real life a car isn't a fashion statement, it's transportation. Nobody needs a new car every two or three years. There are far too many makes and models available for the number of buyers each year. And in the next decade, the churn will practically disappear as people make every effort to AVOID the expense of buying a car (and gas, and insurance, and maintenance).

New York Times
Automakers Fear a New Normal of Low Sales
Published: January 5, 2009

DETROIT — The historic collapse of the new-car market dragged on in December, raising questions of whether the auto industry will ever again have sales levels that it took for granted just a few years ago.

The across-the-board decline of 35 percent, reported by auto companies on Monday, is certain to put more pressure on the fragile finances of several manufacturers, particularly General Motors and Chrysler.

...But unless consumers change course and return to vehicle showrooms, the entire industry will be forced to make sweeping adjustments to cope with declining demand.

...“After an era of excess indulgence, we’re now entering a prolonged period of conservation,” said John A. Casesa of the consulting firm Casesa Shapiro Group. “Trading in a car every three years is a luxury that the average American can no longer afford.”

...The impact of the shrinking market could be felt for years to come, as automakers will continue to cut production and employment, and reduce the number of new vehicles they bring to the market.

“With these declines in revenues, you will see research and development budgets cut,” said Jesse Toprak, chief auto analyst for Edmunds.com, a Web site that offers car-buying advice. “We are going to have fewer new vehicles and less variety for at least the next couple of years.”

...Mr. Press said Chrysler was operating as if the severe fall in demand in recent months was the “new reality” for an industry that had grown accustomed to nearly unfettered growth since the mid-1990s.

The industry thrived on cheap credit that allowed automakers to offer low-interest loans and rock-bottom lease payments to encourage consumers to regularly trade in and upgrade their vehicles.

As a result, American consumers went on a sustained buying spree for new cars, trucks and S.U.V.’s.

In 1970, less than 6 percent of American households owned three or more vehicles, according to the Department of Transportation. By 2000, that percentage had jumped to 18.

More than 244 million vehicles were in operation in 2006, far outnumbering the 202 million licensed drivers in the country, according to the most recent federal statistics...

...Besides the drop in demand caused by the tight credit and a weak economy, the quality of vehicles themselves has improved to the point where consumers do not need to replace them as often.

Twenty years ago, the median age of cars and trucks in use in the United States was about six years. Now the typical vehicle on the road is nine years old, according to federal statistics.

“You may not want to drive your car for 10 years, but you can if you need to,” Mr. Cole said.

And everyone who can't find some way to avoid driving a car altogether will, that's for sure. And it wasn't hard to see this coming, either. It's not like peak oil has been a big secret to the auto makers, as well. They knew the debt-fest couldn't continue and failed to plan for it. This doesn't mean they deserve a bailout - it means they should go out of business, or retool for products actually useful to the post-peak post-credit-spree society, such as rail cars, trams, streetcars, trolleys, and so on.

But don't expect to see anything that intelligent going on. The auto companies were happy to run the buggy makers out of business, but don't expect them to be so nonchalant about their own unsustainable future. They will drag every dollar they can down with them into the dust-bin of history. It will be an incredible waste of resources, to say the least - that and Obamas big plan to rebuild roads no one is going to be using in 10 years. Throwing good money after bad is never a good strategy, class. Better to use those funds to install electric mass transit to every neighborhood.

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