Dismal Forecast for Automakers

The Times has an article this morning about Ford Motor Company’s declining profitability. It contains some telling details about the state of the industry:

In a worldwide market glutted with millions more cars than there are buyers, financial analysts see Ford’s projections as ambitious. . . . For both Ford and General Motors, lending money to car buyers has been more lucrative than selling the cars. . . . Ford was more optimistic than G.M. was in its 2005 forecast earlier this month – G.M. is projecting a steeper decline in earnings this year and pushed back its mid-decade goals. . . . Both have been losing market share despite heavy spending on rebates, and both are weighed down by soaring health care and pension costs. Standard & Poor’s has the debt of Ford and G.M. rated one notch above junk bonds.

The automakers put more cars on the planet than people are willing to buy. Then to help move inventory they created all kinds of leasing arrangements to make cars seem more affordable to people who are already up to their ears in personal debt. The system is nearing its logical end now that people can’t afford any more debt and already have all the cars they need, and the automakers have wound up one notch above junk status.

Meanwhile, car buyers are stuck paying more for cars than if they had bought them outright. But even if they can’t afford cars, people still need them to surivive in the car-dependent sprawl that oozes its way from sea to shining sea. At first, cars were just playthings for the rich, but after five decades of sprawl-building, the all-important need for cars among people of all income levels gives the automakers a captive market. But even this can’t prop up the automakers forever.

The declines in profitability are a fitting comeuppance for two companies that helped create the alienating environment that most Americans live in today. New York City is the last place in the United States where it’s socially acceptable for middle- and upper-class people to ride the bus. Those of us lucky enough to live here can lead meaningful and productive lives without owning a car. That’s what makes this city so great. The automakers can continue to persuade consumers to overextend themselves, and we won’t necessarily be affected.

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One Response to Dismal Forecast for Automakers

  1. aaron says:

    On the one hand I have absolutely no sympathy for the automakers. On the other hand, if they go down the tubes you can be sure that quite a bit of the rest of the economy is going down with them. So much of the US economy these days is purely dependent on the production and selling of cars and sprawl.

    On the brighter side, Perhaps a couple of bad quarters will compel Detroit to start producing the kinds of small-size, low-emission, high-efficiency vehicles that the US really needs…

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