Tuesday, November 4, 2008

Is there any good news for US automakers?

Car sales are continuing to decline rapidly. This is obviously bad news for all automakers, but the major US companies are in particular trouble. GM is unlikely to get federal assistance for a Chrysler purchase, the billions allocated as part of the financial bailout is not going to come quickly and none of the American companies have vehicles to offer those who want high quality, inexpensive and efficient cars (such as a Civic, Prius or Corolla). (Of course, they do have these cars but they are strangely unwilling to sell them in the US.) Ford is expecting an increase in demand for its full sized pickups, in part because of declining gas prices. But no automaker will see their fortunes improve until consumer credit starts to flow.

So where is the good news? I don't know. But I do think this presents an opportunity to rapidly improve the overall quality of vehicles driven on American roads. As the average age of the fleet increases, there will be a bit of pent up demand for new cars to replace those that will go out of service in the next few years. Consider that the average age of an automobile is nine years. Since there are now fewer cars being sold to replace cars coming off the road, the average age should increase over the next year or two. This means that there will be many more cars at the end of their useful (or efficient) life that should be replaced because they are not being replaced now. Incentives to replace those older cars with efficient cars (potentially using alternative powertrains) could produce rapid shifts in the overall mix of passanger cars between the years of 2010-2015, and result in pronounced improvements in energy consumption, pollution and safety. Of course, this means moving forward wiith existing technologies rather than relying on new ones (such as the Volt).

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