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As the Detroit automakers look to restructure, reinvent, and ultimately save themselves, they are up against a trend that has come about over the past couple of decades.
Source: Bureau of Economic Analysis. Click to enlarge.
The graph above shows monthly sales, at seasonally adjusted annual rates, of new cars and trucks (including SUV’s and pick-ups, but not larger construction vehicles and semi’s) in the United States. New car sales have declined, or at best stagnated, through the 1990s and into the current recession. During the 1970s and '80s, car sales sometimes reached rates of 12 million or more per year, but in recent years the rate was only about 8 million (and during the current contraction has fallen to just 5 million). In contrast, sales of new trucks steadily increased from the 1970s right up until the mid-2000's, as consumer preferences shifted toward larger vehicles. The dilemma arises from the sharp swings in gasoline prices that began last summer, as well as the Obama administration’s push for increased fuel efficiency. Automakers have the difficult task of trying to forecast whether energy prices will continue to rise and how much any rise might hamper sales of new vehicles, especially trucks, in the future. The new fuel efficiency standards will tend to push automakers toward producing smaller vehicles. But automakers, especially the Big Three Detroit companies, must also consider the possible ramifications of shifting away from trucks -- the very sector of the industry that has tended to grow over the past 40 years -- and changing production over to cars, a sector for which U.S. sales have been stagnant. As late as May, the best-selling new truck in the U.S. (Ford’s F-Series) outsold the best-selling car (the Toyota Camry), despite concerns about the cost of fuel. It is difficult to say if the dual trends of increasing sales of new trucks and decreasing (or stagnant) sales of new cars will continue after the recession is over. But the long history of declining car sales is difficult to ignore when thinking about the industry’s recovery.
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-However, here's an issue that still must be addressed: Do we REALLY need to sell that many cars, or are extra sales stimuli just being wasteful? Many modern cars are pretty darn efficient (although no car will ever be efficient enough!), and they are quite durable, so frequent buying appears wasteful (and nearly every study I've ever read concludes keeping an older car longer is far more cost-effective, especially if they are fuel-efficient). When you throw in all the extra expenses of a new car (like the sales taxes, registration and insurance increases, interest, and depreciation), the new car's cost is just the tip of the iceberg.
PS to KVB: Good points, but we are indeed beginning to see some competition within the medical industry. It's called "medical tourism," where an AMerican visits India or Thailand or wherever to get their procedures done. Not sure I'd recommend it, but it is happening. Maybe we can outsource the malpractice lawyers, or perhaps more intriguing yet, our government!!
The free market is not a perfect system. There is no such thing as a perfect system. There is no such thing as blending different, imperfect systems, to create a perfect system. Here is the question that needs to be considered above all: When has the government done anything better that the private sector, except those things that our founders established out government to do, i.e. protection from foreign enemies, protection of our constitutional rights through our justice system, and protection from crime by local government?
The government consistently loses money, our money. The government consistently devalues the money we have. We need new management there as well. We need constitutional patriots for leaders, and we need citizens with backbones and a passion for freedom, not a passion to be taken care of, but a passion to take care of ourselves.
We need free enterprise so that no company is too big to fail, so they better manage their companies properly because no one will be there to bail them out. That is true accountability and transparency because cause and effect when related to bad decisions cannot be stopped; it can only be postponed with the end effect being far worse. This, I fear, we will soon learn...too late, too late.
First, as a mature market with little population growth in comparison to 1920-1980, the opportunity capture new buyers is limited. Coupled with foreign companies saturating the market (and american vehicles restricted in many markets) you have declining opportunity.
Second, as income has stagnated for the average american adjust for inflation, and the increase in cost for other living expenses (gas, health/home/auto insurance, home utilities, college, housing prices, etc.) there is less disposable income so people hold on to their cars longer. When I was a child my dad got a car every four years, now people have to pay off vehilce in 6, 7, or 8 years. Throw in the melt down of an unregulated, greed driven, pyramid scheming, daily thinking, money only financial market and you disaster.
Third, this leads us to car prices, which for American made models carry a high legacy and health care cost. Many Toyota republicans blame the unions for this, but the truth is that in the next several years, Japanese automakers will have these same cost. I lived in TN in the 80's when Nissan built the Smryna plant and staffed it with younger workers. Now they are of retirement age and the very costs the US automakers are crusified for will be their reality too.
You also must face the fact that the auto industry has been lead by a bunch of over priviledged, narcissitic, yes men. (the last two traits seem contradictory, but as a native Detroiter I know they really exist). How did Ford lose its mid-1980 (Mark 8, Continental, Town Car) to mid-1990 luxury car market? How does Chrysler constantly change over management teams and pay out hundreds of millions in compensation to each group? How does GM not recognize that it over saturates the market and cannibalizes its own sales with 6 brands?
Finally, as a health care provider and administrator, until we have a single payeror public insurance option we will never be competative with other nations. With a public option we can cut legacy cost by at least 40% (GM has average legacy and current cost of about $10,000/ employee or $2000 per car). the agument that the government will tell me what doctor see and what care I can get is already happening with the current private insurance model. As, a provider I can only see patients if I am on that companies provider panel, but they limit who gets on the panel. Insurance companies tell hospitals and doctor how much they will make (there is no negotiation or competition); tell you the patient who youcan see and how much you will pay; and they tell both patient & provider what service or meidcation you can have. A good doctor or hospital makes the same as a bad one because of the current system, no competition.
As a staff at a large health care organization I have set on many committees (pt education, tech, clinical care, and finance). On the finance committee one really learns the contradictory nature of health care and cost containment. For example, If I staff fully for primary care and see all patients necessary I would be very cost effect in providing care, but then I would prevent pts from going to the ER, and it would have to close do to a lack of pt flow. Sounderstaffed by 10-15% which always left a primary and specialty care waiting list. We understood that our manage care pts could not go elsewhere (if they did they paid out of pocket) andmost of the rest would stay with their doctor. We understood the some patients would get better on their own, other would wait until they could be seen, some would go else where, and the rest would get worse and to the ER. the health care system is far more complicated than on face value. As a tax payer I am tired of pay for the high cost/high risk pt (medicare/medicaid, Chip, etc) while the insurance companies only take on health low cost/low risk paying coustomers. If you are going to argue for a free market approach they let have a full free market competitive approach where the private sector takes all the risk with the rewqrds, and not have tax payers supplimenting them so they can have massive profits.
Here are some of the things the auto industry could have done to avoid this problem:
1] build lighter cars that are still safe. It can be done with plastics and foam.
2] build engines that are efficient. Toyota has done it and they are taking our markets away from us.
3] build cars that the world wants to drive and export them. But it's too late now. The window of opportunity is passed.
They cannot compete because their management is short sighted, greedy, arrogant and ill informed. They will drag US down with them, and there is nothing we can do about it. We are turning into an agricultural third world economy, slowly but surely, and that which gave US power is being dissipated. Frustrating, ain't it?!
This is from CNBC: "The key to better mileage is lighter-weight cars -- in which people die more often in traffic accidents. Since CAFÉ passed in 1975, smaller cars have killed almost 50,000 more people than otherwise would have died on the roads, the National Highway Traffic Safety Administration," which is an arm of our government. And that was in 2002. "CAFE kills up to 3,900 extra people each year, a study by Harvard and the Brookings Institution states. It finds that for every 100 pounds less that an auto weighs, up to 780 more people die in traffic accidents in a year."
The socialists/environmental wackos are destroying this great nation.
ADD TO THAT THE NEW MANAGEMENT TEAM IE; OBAMA & CONGRESS...AND YOU HAVE THE PERFECT STORM......