• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Car Sales Plunge: Who’s to Blame?

    Automobile sales have plummeted across the board for the month of September. Not only were sales down for Chrysler (33%), General Motors (16%) and Ford (34%), but Asia-based brands Toyota, Honda and Nissan fell 30% over the course of the month. Sales in European and Asian markets are down as well. Can we blame the credit crunch?

    That’s certainly part of it.

    Todd Greenbaum, general sales manager for Castle Hyundai in New Castle said,

    We’ve had people with what seemed like OK credit, but we still couldn’t get them a loan.”

    The pool of money consumers need to borrow in order to purchase a vehicle has all but dried up. But let’s not forget, auto sales have been in decline – the credit crunch merely exacerbated the problem. In fact,

    U.S. auto sales were down 11 percent year-to-date through August, which marked the 10th consecutive month of declining sales on a year-over-year basis, the longest streak since the 2001 recession.”

    Let’s not forget $4-a-gallon gas and Detroit’s bad business practices either. Detroit’s choice to stick with gas-guzzling vehicles as consumers shifted their demand towards more fuel efficiency certainly played a role. Their business model, along with high labor costs from unions and excess dealerships all contribute to a failing industry.

    It’s also important to point out that companies like Honda thrive when Detroit doesn’t adapt its business model:

    Earlier this year, Honda was able to steal market share by touting its more fuel-efficient cars as gas prices kept rising. Sales actually rose from January through July.”

    But as mentioned above, even companies like Honda had a rough September – a 24% drop in U.S. sales. Given the current state of the economy and the uncertainty of its future, it’s unlikely consumers will be rushing to dealerships anytime soon. Whether a financial bailout package will restore consumer confidence and rejuvenate sales (and how expeditiously this will occur) remains to be seen.

    One thing’s for sure: the auto industry shouldn’t have its own separate bailout. Last week the House approved a new $25 billion loan program for Detroit automakers, and the Senate followed suit. The loans are to develop alternatives to conventional fossil fuel powered vehicles as well as more fuel-efficient cars. The Congressional Budget Office (CBO) estimates that the loans will cost the federal government (a.k.a. taxpayers) $7.5 billion – double what the initial estimates were.

    And it’s debatable as to whether these loans will actually have an effect, as written by the Wall Street Journal’s Heidi Moore: It’s not clear that the $25 billion will even help the automakers very much. Their cost for reaching energy efficiency may be as much as $100 billion. And the timing is fuzzy on the crucial question of when the automakers will actually get the money. Friedman Billings Ramsey research analyst Andrew Parmentier wrote this week “government sources have privately echoed our concerns that the restrictive language will slow the ability of the auto industry to draw down these funds.” It may take the industry five years to even get enough energy-efficient infrastructure in place to accept the loans, he explained. That could be a rude awakening to Wall Street investors who bought stock on the assumption that the automakers would get the money as a true lifeline.

    Moore concludes:

    If the government is in the business of cheap money, then, perhaps it should be shelling it out to an industry that needs it more urgently.”

    Posted in Economics [slideshow_deploy]

    Comments are closed.

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.

    ×