Friday, December 12, 2008

Car bubble

Yet another failed attempt to pass the rescue package for US automakers. How long before they try again? February? (Aside: Will GM's, Ford's, Chrysler's CEOs now bring their private jets to fly back home to spite the Senate?)

Here's one I haven't heard before (though maybe that's because I haven't been able to follow the blogosphere that much lately):

  1. Over the years, we had been hearing that US automakers were not making a good return (to say the least) on their auto-making side, but were making some profit on the financial side. This is taken today to mean that consumers didn't really want the cars they made if it wasn't for their very convenient, easily obtained financing. (Remember all those "0% financing" ads?)
  2. Now we are all painfully aware that credit was so preposterously cheap in the last many years thanks to (lay-the-blame-where-you-will) set of circumstances which led to the non-pricing of risk.
  3. So was the strategy US automakers used to survive this far just another side-show in the (market-failure induced) Cheap Credit main attraction?

(Keep in mind that "US cars" are, controlling for characteristics, already cheaper than "foreign" ones; and that more-expensive labor, for all it's blamed, has but a small effect on the final price of a car; see here, for example.)

In other words, now that the credit bubble popped, is there really a place left under the wintry sun for all three of GM, Chrysler, and Ford?

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