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 The United States economy may be crumbling, but that’s okay, your representatives are hard at work to squeeze every last dollar out of it. That’s right, they’ve announced yet another bailout, this time for the struggling auto industry. The federal government claims that this will give Detroit a chance to recoup for losses they have sustained as a result of the current economic crunch; in case you’re still wary, Reuters reported that “the loans would be called back if the automakers cannot prove they are viable by March 31.”
But wait a second, haven’t our automakers been in a slump for several decades? The oil recession of the late 70’s and early 80’s heavily impacted American automakers, as smaller, more efficient foreign cars began to take up larger parts of the market. Turns out people didn’t want to pay preposterous petroleum prices to keep driving their solid-frame, gas-guzzling American cars, so consumers began a steady trend toward better gas mileage.
During the 1990’s, there was a highly-contagious epidemic of SUVitis. And why not? The Soviet Union was no longer a threat, and we were undeniably at the top of the global heap. You only live once, why not do it in a magnificently-inefficient $30,000 Chevy Suburban, at 10 mpg? Even better, how about a Hummer—prominently ugly and even worse for gas mileage. Things were going reasonably well for GM, Ford and Chrysler during the “Gay Nineties,” with future prospects for even more wasted energy.
Allow me to explain something about gas: it is in finite supply, and harder and more expensive to drill than ever. Concurrently, the demand for gas has been steadily increasing over the last century, thanks to automakers worldwide. Let us not forget the objective of the auto industry (whether American or not): to sell you an over-customized piece of machinery that immediately depreciates in value, will provide a consistent expense during its lifetime, and cannot be re-sold for profit (unless you don’t use it). A business person might call that a losing investment, except if they worked for GM. In that case, they’d call it “the American dream.”
There’s been a lot of talk lately about foreign oil dependency. Which industry represents the greatest avenue for such dependence?
Well, the American tailpipe-dream may come to an end soon, whether or not the federal government continues to supply Detroit with funds. Remember that these are the same automakers who decried increasing gas mileage standards, the same businesses that refused to adapt to new “hybrid” technology—that is, until the American public got tired of spending more than fifty dollars to fill up the tank.
The fault for the decline of the American auto industry does not lie in the land of economic crises. Transportation is a key aspect of infrastructure, one which is key to any country’s financial well-being. In the United States, however, transportation has become an economic industry in and of itself; in other nations, most private citizens would consider a car an unnecessary luxury, relying instead upon various forms of public conveyance or even (gasp!) walking.
In order for American car makers to advance their market, it was necessary to make car ownership the norm. Our current situation is almost entirely attributable to the proliferation of the automobile amongst all geographic, economic and social spheres by the automotive industry. Consider the fact that the United States is home to approximately 250 million of the world’s 860 million cars.
The population of the United States is leveling out to about 300 million, meaning that there is a car for every 1.2 people. Is it possible that this market is saturated? It is not only possible, it is certain. With income disparities increasing at an alarming rate, the median household income in this country, according to the 2003 U.S. Census, is around $43,000 (keep in mind that means that 50% of our households earn less than that). The National Automobile Dealers association reports the average MSRP of a new car is $28,400.
That’s a significant statistic, because it indicates that the majority of the American people cannot afford to buy a new car. Naturally, many choose to finance their purchase. Auto financing is known as non-revolving debt, meaning that unlike credit cards and home equity credit lines, the consumer’s debt is not a pre-approved account of debt, to be repayed only in relation to the amount spent. Though revolving debt is perhaps our most familiar association with credit, the non-revolving type actually accounts for 63 percent of consumer debt. Moreover, the Federal Reserve reports that “In contrast to the housing market, in the automobile market, households have shifted somewhat from owning their vehicles and incurring debt to leasing (renting) their vehicles. In 1992, 21.2 percent of households leased a vehicle. By 2001, this figure had risen to 53.4 percent. Because of this shift, a measure of financial obligations that excludes automobile leases understates increases in consumers’ required automobile finance payments.”
In their book “What the Numbers Say,” Derrick Niederman and David Boyum provide an in-depth analysis of various examples of Pareto distributions, explaining that “In a Pareto distribution, the frequency of a quantity is inversely related to its size: small quantities appear frequently, while large quantities are rare.” This applies brilliantly to the income disparity in the United States (as the distribution was originally used to explain differences in income), but it also can be used as a lens for viewing household expenses. As Niederman and Boyum inform us, “According to data from the federal government’s Consumer Expenditure Survey, 32.4 percent of household expenditures go for housing and 19.5 percent for transportation.” The sum of the two is 51.9 percent, meaning that every other household item must take a back seat to these two exorbitant costs. It also means that the traditional means of saving money (buying cheaper groceries, etc.) will have very little effect on the average person’s bottom line. The mathematicians conclude: “Let’s face up to Pareto’s Law: Most Americans need to take a hard look at their housing and car expenses.”
Yes, indeed, we do. As the economy circles the drain, so does our personal income, and thus the percentage is even higher in tough times. If the automotive industry refuses to make the cost fit the market, we should refuse to pay it—and it appears we have.
Our car companies will never be competitive on the global market with their current tactics, and, as I’ve shown, they may never have a solid market in this country again. It is nothing short of extortion to force Americans to pay a higher price at the pump when there are viable alternatives available. If these companies want a “bailout,” they should have to prove that they are going to begin operating in the interests of the American people. Until then, good luck trying to buy a Prius—they’re selling faster than they can keep them on the lot.
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