A Solid Auto Industry Bodes Well For The Economy

A Solid Auto Industry Bodes Well For The Economy

It’s amazing what a difference five years can make.  Five years ago, the domestic auto industry was a mess.  General Motors and Chrysler were spiraling toward insolvency, resulting in the need for eventual assistance from the government.  Ford, the other member of the ‘Big Three’ had recently mortgaged all company assets to secure credit in an effort to turnaround and stay afloat.

mb-201309trucksBottom line, things were not well and there was a lot of doom and gloom.

Things hit bottom in 2009 when GM and Chrysler did take bailouts.  By this point, Ford had started to show signs of turning around, but their stuck was still mired in the low single digits.  Across the board, the auto industry was in shambles.

Things turned around pretty well for the industry after that.  Many people argued that bailing out GM and Chrysler was inappropriate, but whatever side of the fence you stand on, the fact is that all three companies (as well as other auto companies) have returned to profitability.  The thing that impresses me is that they’ve actually built a solid foundation so that profitability can be expected.  Ten years ago, the companies were making big profits, but sales were inflated largely by big discounts, low lease rates, and other practices which were not sustainable.  These days, the companies can sustain profitability even if sales were to fall.  In the past, a fall in sales would send companies deep into the red, bringing the need to create even bigger incentives.  Eventually, this house of cards had to fall, and it it did.

But the good news is that companies shed a lot of bad practices that had accumulated over the past decades.    It’s my opinion that this bodes very well for the overall strength of the economy.  You see a lot of articles out there on whether the economy is really recovering, with some claiming that another recession and crash is right around the corner.  I know many people who don’t have any ties to the manufacturing industry might be skeptical, but I believe that in the end, a healthy auto (and manufacturing) industry is a very solid foundation for the economy.

Will there be ups and downs in the economy?  Of course.  Will this follow in the auto industry?  Yes.  I’m not saying that the economy and the auto industry are going to grow every single year with no end in sight.  What I believe is that the auto industry, and the economy, will be able to bear these ups and downs much better than in the past.  We might not be growing the economy at a rate that economists are thrilled with, but I think that we have built a solid foundation so that any slowdowns won’t lead us into crisis.

Building a solid foundation is important for longevity, and I believe that the automakers have a solid foundation for success and that this will help lead to stability in the US economy.

10 thoughts on “A Solid Auto Industry Bodes Well For The Economy”

  1. I am skeptical of the auto rebound so far – the average age of cars on the road has been at historically high levels because people were putting off purchases.

    I don’t know if this is real strength or just a little catch up.

    • Increased quality has also helped keep cars on the road longer, which is a trend that should continue. This will keep the overall numbers from approaching peak levels, but it will force automakers to continue to look at improving quality as a constant goal.

  2. It is great that the auto companies were able to recover. It is too bad my General Motors stock became worthless in order for them to recover. I’m hoping the companies have their business figured out now and continue to stay in business without more bailouts.

  3. I have a friend who works at a dealership in Pittsburgh, PA. She says sales have really picked up in the last year. To me, even more telling is how much the housing market has picked up. People must feel like they have good job security to be buying houses like they are. Houses in my area are selling for more than they did during the housing bubble of 2007.

  4. These businesses were so close to the edge during the financial meltdown in 08/09. The fact that they got bailed out rather than went to the wall helped maintain financial confidence. If the car manufacturers went bust, it could have been even worse than Lehmans

    • I agree. You wouldn’t have lost just the jobs at the automakers, you’d have had a domino effect that would have first hit the suppliers, then companies that supported both the automakers and suppliers (think: marketing, accounting, auditing, etc.) followed by the residual effect that would have affected retail, restaurant, and everything down the line, and it would have just kept coming in waves. I think many people who said ‘let ’em burn’ had no idea of the ripple effect even one bankruptcy would have produced.

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