It’s Not a Deadend for the American Automobile Market

According to Chrysler’s and General Motor’s reports, we can see that there still is a big dispute over the future of the American market. Chrysler reports: American people need 12 million to 13 million vehicles per year; General Motors reports: the automobile market will come back to life, and the annual need will be 16 million in about 5 years.

But Ted Haoquan Chu, director of global economic and industry analysis and the lead economist at General Motors, figures that it doesn’t mean that the automobile market will become as good as it was before the financial crisis, when the annual consumption was above 17 million cars.

He points out that in the near future – in about 5 years – it will be hard to reach such a high sales volume.

But he believes that the market will come back to life, and the reasons are bellow.

Firstly, the financial crisis didn’t change the basic structural requirement. If the price of gasoline in America rises as high as it in Europe, Japan and Hong Kong, then there will be a structural constraint on automobile consumption. Ted Haoquan Chu estimates that gasoline prices will rise gradually. If the global oil price rises to 140 dollars a barrel, in America it will be 4 dollars per gallon.

Ted Haoquan Chu’s analysis is based on the experience in 2007: if this is the case, people will buy small cars instead of big ones or trucks, but it will not suppress people’s wish to drive, though some people will choose buses instead. At any rate, society’s need for automobiles will not change.

Secondly, American government has decided to invest in infrastructure, though this doesn’t mean there are plans to build highly developed public transport as exists in Japan or London. Eighty percent of American citizens live in suburb areas, and do not travel by bus. As a result, they must have private vehicles.

In America, those who are over 16 years old are allowed to drive. There were 72 percent of Americans with driving licenses in 1960 – this amount reached 85 percent in 1980. The number is still growing, but slowly, which means that the American market’s need for cars is stable, and also means market saturation is an issue, Chu said.

Though America’s economy is suffering, since 86 percent of Americans drive, people’s need for cars is not decreasing. Three oil crises in the 70s and 80s, and two safety-related requirements raised the general cost of cars. Some people have predicted that the automobile industry would have disappeared, but automobile sales are still continuing. Furthermore, the technological revolution didn’t affect the American automobile industry.

The American government’s recovery plan is like a heart stimulant to the American economy. But this will not be a self-recovery, so Ted Haoquan Chu doesn’t expect that the automobile industry will return to the level it was at before the crisis.

Government aid to the automobile industry is just beginning, and there are still a lot of things for us to expect, he said confidently.

The automobile industry in America has not changed much. There will be about 12.5 million cars falling into disuse every year if the annual consumption is 17 million, and the growth rate of population in America is 2 million per year; and as those who are over 16 can drive, there will be 2 million more people who will drive their cars, so there will be a deficit of 3 million cars.

Some people gave up driving during this financial crisis. The renewal period of cars also became longer than before, thereby fueling another industry – automobile repairs and servicing.

Ted Haoquan Chu suggested that bigger vehicles’ prices should be raised to force American consumers to drive smaller cars. And he thought that the percentages of different vehicles would change in ten years, but that this would not affect the automobile industry’s sales. Most Americans would still prefer to live in the suburb areas, so they have to depend on cars, even if smaller ones.

As for the lessons learned from the American automobile industry, Ted Haoquan Chu said that the main reason for this crisis was the American government’s man-made stimulation of real estate consumption, which is basically a mistake in the government’s policies. Secondly, it’s because of trade protection. Americans want to gain back the center position in manufacturing, but Ted Haoquan Chu feels that Americans should look forward, not backward, which means that the way out is not to gain back that position, but to develop the fields of biological revolution and artificial intelligence, which is the key for the next leap for America.