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.