The Auto Nation is Down

You all did love cars once, not without cause. What cause withholds you now?

Few countries have embraced any industry with the fervor America used to have for its automobiles. Cars weren’t just a product, they were part of our culture, our very identities. In my youth our neighbors were Chevy people like us, or Ford people or something else, the Other, and everybody knew who everybody was. Getting your driver’s license and your first car, which often happened on the same day, were major, unforgettable milestones in your life. Families celebrated the arrival of a new car as if it were a new baby — with gloating tours of the neighborhood, distribution of pictures, and so on.

In 2009, when a chain reaction started by the financialization of subprime loans for real estate threatened to destroy the world’s economy, America declared that the auto industry was too big and too important to fail, and rescued it just before it did, with massive infusions of imaginary government cash. General Motors and Chrysler tiptoed back out of bankruptcy, and the whole industry tiptoed back from the brink of the abyss.

They resolved to do better; to build better, safer, more reliable and more efficient cars and trucks, and thus to win back the confidence of the American people.

Of course they didn’t do that. They needed to sell more cars, faster, in a deep recession, and they did it the old-fashioned American way — by relaxing credit standards and terms. Pretty soon anybody who could fog a mirror could get a new vehicle with a nothing-down, six-year, no interest, cash-back loan.

They used every financial tool the housing industry had used to crash the economy of the world in 2009: liar’s loans (they lied about the applicant’s income) , no-doc loans (they offered no proof of anything) , NINJA loans (no income, no job, no assets) and, of course, financialization (in which financial alchemists turned bundles of bad loans into highly rated assets and sold shares in them).

It worked. Sales of bonds backed only by subprime auto loans went from $2.5 billion in 2009 to $26 billion last year. The number of new vehicles sold went from a paltry 10.4 million in 2009 to 17.5 million last year.  The auto industry was the strongest performer and one of the major job creators of the long and anemic recovery from the crash, contributing up to 80 per cent of recent manufacturing growth.  Sales increased for seven straight years. What could go wrong?

Whatever it was that could go wrong, went wrong as 2017, the eighth year,  commenced. Automobile sales declined for six straight months, with increasing speed. General Motors sales have declined almost 20% so far this year, and plunged 38% in June. It has slowed production and laid off workers, and now contemplates discontinuing six models and closing an entire assembly plant. At the end of April, GM reported that it had nearly a million new cars sitting in lots around the country waiting to be sold — a 50 per cent increase in unsold inventory in one year.  

Plus — and who could have seen this coming? — default rates on the subprime loans that fueled the industry for years have skyrocketed. As of two weeks ago, nearly four per cent of all auto loans were in 90-day delinquency, a number that may not sound huge but that scares the crap out of bond investors who are being told that their assets are rotting. How could they have known that investing in subprime loans was unwise? It’s like expecting Donald Trump to know ahead of time that health insurance is complicated.

So the auto industry, and with it probably the country’s economy, is beginning a catastrophic contraction. This time, there is not likely to be the money — even imaginary money — nor the will to bail anybody out.

And beyond the self-inflicted financial wounds, the car industry has to face another existential crisis: we are pretty much over our juvenile fascination with cars. Sixteen-year-olds in increasing numbers aren’t even bothering to get their driver’s licenses; suburbanites in droves are moving to the inner cities so they don’t have to drive; we just don’t care anymore.

 I, Chingachgook, am the last of my people — the last of the Chevy people.


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8 Responses to The Auto Nation is Down

  1. JungleJim says:

    As a boy growing up in the blue collar suburbs of Detroit in the 50s and 60’s I can attest to the sentiments you express. September meant back to school and the excitement of the new car model year. It was about all us boys talked about. My God, the ’63 Corvette. The ’64 GTO. Orgasmic. Throw in the the Mustang and Camaro and you were talking Nirvana. Times were good! And you’re right. I got my license on my 16th birthday. What an exciting time. Yep, times have changed. My 10 year old Corolla is running strong and have to chuckle as the BMW’s and Merc’s fly by me only to be held up by the same stop light as me. Have no worries. The Fed will bail out the financial markets just as in the last decade. Moral hazard be damned. The casino and house of cards will eventually fail. And so it goes. I’m gonna miss Sam Shepard.

  2. SomeoneInAsia says:

    I’ve always dreamt of a Lamborghini that can FLY. Just joking.

    If cars are the only things that have to go, I’m glad. Trouble is, there are a whole lot more things that will have to go with them, a few of those things being critical to our survival — unless we live in a remote and self-sufficient eco-village. (I’d move to one, except I’ve a family I’m obliged to, and if I say to them we all need to move to one they’ll think my screws have all gone loose.)

    What have I done in my past lives to deserve this?…

  3. Rob Rhodes says:

    Your remarks reminded me of one fall when the first episode of “Bonanza” was run without ads so GM could introduce their new model year in a long reverent commercial uninterrupted by Ben and the boys. I think though that Lorne did MC the ad.

    Theodore Rozak foresaw the “expert’s” likely solution to this problem in “Where The Wasteland Ends” (1973) pg. 59:

    “When the internal combustion engine becomes an intolerable nuisance, the proposal will be that we retool and replace it with an electric motor- which also provides the neat advantage of selling everybody an automobile all over again.”

    I have met well heeled believers who anticipate their first electric car the same excitement you describe above.

  4. Tom says:

    You’re so right, Mr. Lewis – anyone who wants to do even cursory research, can line up heavy duty financial people (and others) who see the economic crash coming, from Wall St. to Main St., effecting everyone and everything. The time line starts in the next few months and extends to the end of next year (for the crash to BEGIN).

    As long as the trucks don’t stop running (supply chain disruption) we may just make it through that, but the attendant and unfixable environmental predicament will not only be far worse (we’re talking the 6th mass extinction – and this is from mainstream media now), but will lead to the collapse of civilization and lead to all out war, chaos and the end of humanity (not to mention all the other species).

    Our strange fascination with THINGS that we make, disregarding and ignoring all the pollution that’s produced in the process, has lead us to where we are now. The oceans are so full of plastic that the fish we eat (as well as other foods – like sea salt) contain micro and nano-sized particles of it; our environment is bathed in man-made (as well as solar) radiation that’s affecting DNA and reproduction – hey, after 6 years, they finally think they’ve found the melted core of the Fukushima reactors that melted down! – and it’s increasingly getting too hot (or cold/wet/dry) to grow crops due to our unpredictable weather that is a by-product of climate change (due to CO2 pollution, but now with methane!).

    Somewhere along the line of our ancestors, we went off the track of being one of the myriad species given the gift of life, to being IN CONTROL (in our minds) of it all through INDUSTRIAL AGRICULTURE.

    Our little adventure in civilization is ending. Enjoy it for the time we have left, because we’re all going to keep doing what we’re doing until we can’t.

  5. Ken Barrows says:

    My millenial nephews still cannot imagine taking the bus. But, yes, car ownership among the 25+ may go down from 98% to 95%–until events make car ownership obsolete for just about everyone.

  6. Stacy Canterbury says:

    Neither of my kids have even bothered to get a license. My 25-year-old bikes to work. My 20-year-old has her permit, but doesn’t drive either. She uses bike or the bus. Driving is too expensive for them. Husband and I have been sharing one car for nearly twenty years.

    • Pamela says:

      My sons are not interested in cars or driving either. My 17 year old takes the city bus and the 15 year old tags along with him. My husband and I don’t mind as we cannot afford the increase to our insurance payments by adding teenage drivers.

  7. Tom says:

    A Beautiful Machine to Change the World — Model 3 to Transform Global Automobile Markets, Open Pathway For Rapid Energy Transition

    [Robert continues to ignore the fossil fuels used in production (and delivery), the rare earth elements that are mined to produce electric vehicles, their maintenance and ultimate destination (scrap yard or recycling center) in his happy assessment that “clean energy” can “save the world”)]