Is the Auto Crisis Just a Lack of Demand?


car sign; happyshooter via Flickr

Question: I don’t understand the auto industry crisis. I infer that it is because we’re in a recession, and not many people are buying cars. Is that all of it, or is there something more?

Paul Solman: Are you talking about the U.S. auto industry? In which case, how about decades of low quality products, relative to the competition? How about the fact that the United States, unlike its rivals from Japan and Europe, has no government-run healthcare system, so companies have to bear the cost of health insurance, which they have to pass on to consumers in higher prices and/or lower quality?

If you’re talking about the world auto industry, well, at various moments in their history, many industries produce more than the market will bear, at the costs the industry pays in order to produce. That’s certainly true of housing in the United States at the moment (and lots of other countries, too). It could well be true of the world auto industry.

But maybe it’s just the “recession.” Auto sales are down, what, 50 percent in the United States alone? That kind of sudden decline could destroy almost any industry.