|Feb 17, 2009
||Posted By: Mark Bilek
Back to Blog
Reports of the demise of the domestic auto industry are greatly exaggerated. If you read the papers, the Big Three are living on borrowed time. Perhaps the media is forgetting that people still need to get from place to place. Maybe they think we'll all just teleport there (you first, BTW).
Sure there's likely to be a shakeout and a few brands will cease to exist, but doesn't history tell us that brands come and go. Remember Studebaker, Hudson, Packard, AMC, Oldsmobile, and, of course, Edsel.
The problem is most people in the media have very short memories. Sales of new vehicles are cyclical. They ebb and flow with the frequency of the tides. Up until last year, automakers have been riding a wave of unprecedented sales, peaking at more than 17 million units per year. But things haven't always been so rosy in the auto industry.
In 1991, new-vehicle sales dropped to 12 million units per year. Like today, the vultures began to circle and automakers dug in. Currently, we are on pace for about 14 million--so we're still producing and selling more vehicles that we did at the most recent low-water mark. Obviously the auto industry is more resilient that many think.
It's recently been reported that the scrap rate for vehicles now exceeds the production rate. In other words, each day there are fewer vehicles on the road than the day before. Eventually, people will need to buy new vehicles just to keep up.
Today, both Chrysler and General Motors presented plans to Congress to further reduce jobs and costs to better compete in today's marketplace. It's something that had to be done and something that probably should have been done years ago. Of course, the automakers need to do this to show fiscal responsibility as they continue to ask for federal loans to bridge the gap until the economy recovers.
Regardless of what happens in the next year or so, Americans will still need cars. They will need 14, 15, 16 million cars per year. The foreign automakers can't support that demand--now or in the near-term future. The domestic industry will is needed weather we like it or not--that is unless you want to pay $40,000 for a Honda Civic.
And the doomsday media may be missing the most important factoid of them all. Americans are in love with cars. Short ones, tall ones, skinny ones, fat ones. There's a car for every buyer and, eventually, a buyer for every car. Want proof? Scroll down.
BTW, the lines aren't always this long, it was a Federal holiday after all. But still, reports of the demise of the domestic auto industry are clearly premature.