Local car dealers have a point when they lament that fear about the future, perhaps even more than economic reality, is driving down car sales. Even people with steady paychecks and, presumably, the ability to secure financing are reluctant to commit to a major purchase when they wonder how much worse this downturn may get ó or how long it will last. Nobody knows, and when traveling in the dark, people are a lot more likely to step cautiously than make a headlong rush down an unfamiliar path.
Here’s another point the dealers could make: While the U.S. auto industry has seen its market share erode over the years, it has become a scapegoat for industrial ills that extend beyond the automotive sector and involve government policies (an outdated fuel taxation strategy and ineffective corporate mileage mandates, for instance) as much as managerial ineptness. Domestic automakers and worker unions certainly aren’t blameless for the industry’s predicament, and they need a detailed restructuring plan, but what’s happening in the U.S. auto industry shouldn’t be viewed in isolation from what’s happening around the world. Detroit’s Big Three aren’t the only car companies facing big questions about future profitability:
– Toyota, the world’s largest automaker, expects to sell about 400,000 fewer cars in the United States this year. Although it has a healthy cushion of cash and projects total profit this year of about $5.5 billion, that’s about a third of last year’s earnings.
– Nissan’s U.S. auto sales dropped 33 percent in October, prompting the company to cut its profit forecast for the year.
– Honda reported a 41 percent drop in quarterly profit, forcing Japan’s second-biggest automaker to lower its forecasts for the year.
– BMW, the prestigious German brand, saw its third quarter profit plunge by 63 percent.
– Kia Motors’ stock price recently fell to its lowest level in more than five years on concerns that repaying a $378-million debt may leave the Korean automaker short of cash.
– Jaguar-Land Rover, which was purchased by India’s Tata Motors from Ford Motor Co. earlier this year, reportedly is seeking $1.5 billion in government aid from the British government.
Make no mistake ó the major domestic automakers are in a much worse position than companies like Toyota and Honda, which can draw on substantial cash reserves. When GM executives raise the possibility of bankruptcy, they aren’t crying wolf. But it’s a distortion of market conditions to suggest their plight is simply the result of bad decisions or inferior products. Just as a dose of economic history might help Americans realize that we’re nowhere near Great Depression-era hardships, a broader perspective could also help frame the debate over extending government aid to automakers. Many other automotive manufacturers around the world are suffering, too. Don’t be surprised if the requests for financial help coming from Detroit aren’t soon echoed in the corridors of power elsewhere.