Gene Expression

BusinessWeek, The Tough Road Ahead for GM and Chrysler:

The upshot is that some 30 significant players worldwide are fighting over a pie that has shrunk by more than 30% in the past 12 months. The industry can make about 90 million cars worldwide, but it’s selling only about 55 million. Not exactly a forgiving environment for a pair of wounded car companies. That, partly, is why Chrysler’s rescue has struck some as misguided. Speaking of the government’s decision to save the weakest and smallest Detroit player, industry consultant Michael Robinet says: “We needed to take a patsy out, and we didn’t. We may have missed an opportunity. The Japanese, Hyundai, and the Germans will still be here.”

I was skeptical of the bailout last fall because I assumed bankruptcy was inevitable. Of course I don’t know much about the automotive industry, but numbers like those above aren’t hard to find. It seems likely that the government knew that a bankruptcy was coming anyway, so the whole song & dance about the bridge loans were going to make the companies viable was kind of weird, though perhaps there’s some “animal spirits” rationale for the soft landing….

Comments

  1. #1 ed
    May 28, 2009

    It’s silly to think that the current low level of auto sales will persist. It can be really low for a while, but then the cars will start to wear out faster and people will need to replace them.

    I agree that 90 million cars per year is unsustainable, but 55 million per year is also unsustainable.

    (Also see this post by Jim Hamilton):
    http://www.econbrowser.com/archives/2009/02/january_auto_sa_1.html

  2. #2 Donna B.
    May 29, 2009

    My concern is that used cars will become more expensive as many people won’t buy new ones so often. This is personally detrimental as I’d become fond of being able to buy used cars with most of their usable life left for pennies compared to the cost of a new one.

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