Crude oil prices are creeping to the $100 a barrel and OPEC is upping production because they realize that they must be careful not to exceed the market’s ability to absorb fossil fuel’s impact upon our citizens’ ability to pay for the privilege of powering their vehicles via hydrocarbons. It is a difficult balancing act of making the most out of their natural, but limited, resource without impact its ability to be sold in volume.
Meanwhile our government is buying up all the sweet crude it can get its hands on and stashing it as a strategic resource. Where is this Champaign of crude oil being stashed you say? Underground. Millions of barrels are being pumped deep under American soil.
U.S. automobile manufacturers are facing a grim reality that the American market for purchasing automobiles is diminishing. Next years outlook is perhaps as low as 15.5 million units of light vehicles. There will come a time when the U.S. car market will no longer be the major driver of automotive design. The growth market for cars is China and India and will likely progress into Russia and Eastern Europe before it explodes in Africa.
The U.S. automobile corporations have been lining up in China for years with GM holding a commanding lead. They must find markets where they can sell in volumes that once were the sole domain of this country. That is why you would see European and Asian car companies bring their cars and trucks to these shores to sell. Many were designed specifically for the American market – not a trivial investment.
I watched how French cars like Pugeot and Renault once buzzed around the roads in America along with Citroens, Fiats, Alfa Romeros, and others. All because they knew that to make the big time they had to be successful in this market.
Many of the English makes disappeared because they could not keep up with the market demands nor sell in volumes that would make compliance with ever changing Federal regulations affordable. Brands such as Humber, Sunbeam, Triumph, MG, Austin-Healy, etc., could be found on these shores, but no more.
This attrition was not unique to off-shore brands either. Willys, American Motors, Studebaker, Hudson, Oldsmobile, Plymouth, Kaiser, and others disappeared in post WWII America.
The American Car Corporations know that they must be successful in the expanding Asian market. That means paying attention to what these county’s consumers really want and can afford. It also means competing with home brands of cars since China has its own automotive companies. As sales potential falls in America – Toyota, KIA, and others will want to make up the short fall in these new markets.
There may come the day when American car companies will no longer be able to compete successfully in Asia and India and disappear from those countries like Citroen has in the U.S.
Now that they have been able to negotiate away the massive residual financial burden that the unions had placed on them decades ago the U.S. companies are executing a massive restructuring. They are trimming their inventories down to levels not heard of in decades. Soon a 45 day inventory will be history. Maybe they can learn from the personal computer business and provide a business model akin to CTO or configure to order, where a customer by-passes the traditional dealership and configures their desired vehicle on a web site and it is delivered through the financing institution. Dealerships will then revert to service and warranty shops. The sales office will be limited to representative models to facilitate a test drive and whiff of new car smell that hooks the customer to configure their desire.
Or maybe not.
One of the big drivers of all this change is the fact that as you watch the car companies reduce their U.S. payrolls by 10-20,000 at a whack (including white collar jobs), so are other U.S. companies as they shrug off the business constraints of pensions and health insurance. Soon our country’s economy will be based more on a service business economy rather than the corporate industrial economy that the post-war generation enjoyed.
When Henry Ford found he had a problem retaining workers on his boring assembly line he doubled the pay and discovered that he had not only helped his retention rate, but he had also provided enough income that his workers could afford the cars they produced. The life of the worker changed from the agrarian-based economy to an industrial economy that provided many people with such a steady employment environment that wages and salaries practically became annuities. That was stability that the workers that lived through the Great Depression could only dream of. With that income stability followed the development of unsecured credit (A.K.A.: credit cards).
Another economic change is taking place in the U.S. as it heads toward a service-based economy that will dramatically reshape this population’s car buying habits. The cost of car ownership may become a more significant piece of disposable income than it is today. It may even prompt our government to make the interest on car loans tax deductible in order to protect the fragile car market.