I’m not an expert in the car industry. However, with all this talk of government bailout money and the Big 3 (actually big three is wrong, should be more like the Floundering 2), it has me thinking about what we taxpayers are investing in. We keep hearing sales numbers are at record lows, but I never see anything that goes back more than 15 years (Quick aside – I hate when news outlets fail to give us context for “historic” events like this. Reminds me of baseball, when announcers and statisticians give us inane facts like first guy to steal his 20th base on a prime numbered day. Why should I care? Give me context!). So I compiled some data myself, using freely available info from the Bureau of Economic Analysis (under the US Department of Commerce) national income and product accounts (NIPA). The following is a chart indicating total unit sales of autos and trucks since 1948, in millions of units:
Vehicle Sales and Price Index
And here’s the same data but split into domestic and foreign sales:
Domestic and Foreign Vehicle Sales
I also mapped the motor vehicle price index in the first chart to give a perspective on the relative cost. Quick caveat – price indices (especially those related to something as evolving as vehicles) do not perfectly account for quality improvements, but it at least gives some perspective.
What does this all mean? The number of autos sold has been steadily decreasing since the 1980s. Domestic autos are doing terribly, steadily decreasing since the 1970s. What masked this problem was the emergence of trucks as an alternative in the 80s (ironically this came soon AFTER the oil crisis in the 70s), but truck sales dropped significantly with the huge spike in gas prices last year. Essentially US manufacturers bet the house (and now our money) on truck sales and had nothing to hedge if fuel prices rose. Long-term truck sales are in question; I highly doubt they return to the late 90s/early 2000s “great truck rush” (my term) level due to the relative price of gas and the overall global environmental movement.
The overall market has capped out (not increasing), both in units sold, and in relative price. So why are we talking about pouring more money to revitalize the automakers? There’s a macroeffect going on here, and more money is not going to solve it. I understand there are huge political (and economic) ramifications to letting any of these automakers fail, but my hope is that the Obama team will require wholesale structural changes on many levels.
The only way to grow in such a market is to have a revolutionary technology advantage (i.e. an electric car, which again they’re probably behind on, though the Chevy Volt seems interesting), not an incremental advantage. Selling a car with 10% better mileage will not change these trends, (don’t forget that US automakers are already behind the auto technology curve from their years of indulgence with trucks). And the current executives there have not demonstrated any foresight whatsoever, so I have no faith in their ability to execute in this market. These new products don’t need to fill a large market immediately – they just need to grow enough to prevent some of the bleeding, and hopefully it will dominate (much like trucks in the 80s/90s). I hope that a vast majority of the money we invest goes directly into technology innovation, and that everything else either be maintained at a basic level or completely abandoned. Sure it’s a risk, but I’d rather us spend our money risking on technology rather than seeing it slowly disappear in the sinking market. It would be like a startup but with very strong and established manufacturing and distribution at their disposal.
Quick note – The US Department of Transportation estimates the average vehicle lifespan to be 13 years, or 145,000 miles (I wish I could track this historically). I wonder if increased lifespans contribute significantly to the decreases.
Rohit Gupta 
Great blog Ro!
Some additional thoughts on the bail-out in general:
1. The focus needs to be on US jobs, not on US companies. By throwing money at GM and Ford the government is propping failing enterprises for the short term. The incentives need to be based on merit, and assigned to regions and not to companies. E.g., the government can allocate $X for Michigan and stipulate the results that need to be tied to this(for example the number of jobs that need to be created). If that means that Toyota creates local jobs in Detroit and GM has to reduce the number of brands that they have, so be it.
2. This would set a good precedent at the Global level and would allow companies to be most efficient in the regions that they have an advantage in. On the other hand if countries begin to protect local firms then global trade suffers. The recovery from this crisis has to be based on an international coordinated policy response. Protectionism is bad for consumers (as it reduces the choice that they have and increases the price of products), promotes monopolistic practices, and protracts the economic recovery.
3. Additionally governments must act similar to private enterprises and stipulate the terms of the bail-out (similar to banks stipulating terms for their loans). The loan term and interest rate needs to be set. Also the government should stipulate how the funds can be used (e.g., the Auto Industry must invest X% of revenues in R&D for alternate energy products). Without these conditions the bail-out is simply a free lunch for the flailing firms at the expense of the taxpayer. Only with these strings will the Unions at the Auto firms acknowledge the gravity of the situation and budge on their demands.
@Mukul Sheopory
Great points. I completely agree that the focus should be on jobs, with the caveat that it should not be a direct handout to employees. Stipulating fund-usage is important, however I don’t think it should be done by politicians (they never do this right) themselves, but rather someone with more specific experience in the industry.
Pretty impressive research, Gupta. Some people knit. Others paint….You make line charts. Awesome. No, but seriously, scary too think the evidence was there all along and no one in a position of authority “chose” to look. To some extend, I’m sure the saturation of the market led to decline sales in the middle decades. Also, views about buying foreign over domestic changed a lot faster than people expected. But I think the boiling point of stupidity was when everyone rushed out to buy an SUV fully aware that the gas mileage was aweful and prices were likely to rise. A generation of bling, you might say, ultimately led to one big fat FAIL of the American motor industry.
oops….sorry, comment above is from amanda at TiE 🙂