Thursday, January 23, 2014

China recession will devastate auto industry

This article in tells about the falling U.S. demand for cars. It is noted that demand in China is strong. Then the comment is made that cars could be a small player in the markets. Oooops!
Bridge : Domestic automakers, of course, also sell cars and trucks globally, helping to hedge against sales hiccups in their home markets. General Motors, for instance, sells more vehicles in China than in the United States.
“We’re always going to have cars and an auto industry,” Maynard said. “But it’s becoming less of a mass-market industry. It’s skewing higher toward upper-income and luxury buyers.”
The idea that cars can be a niche market is more incorrect thinking based on incorrect information. The thinking in North America and much of the world now, is that cars are just another way to get around that happens to be very popular. Not true. Cars are part of a system of autosprawl. This system is a massive collection of fixed, hard assets. It includes roads, pipelines, gas stations, refineries, military, houses, driveways, DIY stores, big box stores, junk yards, repair shops, and on and on. This system is subsidized, heavily subsidized. It cannot easily be switched to something else. When cars lose critical mass, this system will crash. The sooner we start dismantling it, the better.

Maybe the thinking is that the U.S. can make expensive cars, and import the cheap ones. Think what that means. If you thought foreign oil was a problem, wait until foreign countries literally drive you to work.

Right now, cars sales are dropping in the U.S. and Europe. As this continues, people are going to be less willing to pay the huge infrastructure costs subsidizing autosprawl. When the recession hits in China, the auto industry will not have enough customer base to support its own weight. Then what?

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