2008 Year In Review

It’s unlikely 2008 turned out like anyone expected. We had the skyrocketing fuel prices, followed by a devastating credit crunch and a string of high profile failures and bailouts. Top that off with the Madoff fraud, alleged to be around $50 billion dollars, and it was a year that shook everyone’s confidence from Wall Street to Main Street, and around the world.

The auto industry took a huge hit as people were unable to obtain financing as before, and $4 per gallon fuel curtailed driving and buying (of more than just cars). The auto market plummeted to around 13 million units from over 16 million in 2007. Just about every manufacturers was down, the Detroit 3 hit particularly hard.

GM and Chrysler are only still around because they were able to obtain loans from the Federal government. It was a bad scene all around.

The effects of 2008 will be felt for a long time.

This will likely be a rather large setback for the development and market penetration of hybrid and electric vehicles. It seems the influence behind such efforts will now shift from the market (fuel prices) to government regulation (environmental regulation, though these might also be delayed for economic reasons).

Toyota has put the kibosh on a plan to build the Prius in a U.S. plant. The Chevy Volt is looking less certain in light of GM’s financial problems, and who knows what will happen to all the upstarts such as Fisker.

Then there were more than twice as many dealerships closing in 2008 than the year before (about 900 versus 430), so communities across the nation are feeling the pinch – not just those in Michigan and the regions where assembly plants are located.

Any upside? It was safer to drive. Accident statistics seem to indicate 2008 will go down as one of the safest years on American roads thus far. A large part of this can probably be attributed to people driving fewer miles and, on average, at lower speeds to conserve fuel.

If nothing else we learned how much access to credit can affect the economy. Let’s all hope that 2009 is a bit better.

Detroit Bailout

The American economy appears to be bracing to take a big hit if/when one or more of the Detroit 3 collapse. Millions of jobs, thousands of suppliers and the psychological impact on top of the financial impact will be a devastating loss.

If the government “lends” the companies tens of billions of dollars it will effectively amount to a grant if the companies fail. Not only that, it will shrink the tax base causing even more pain.

Such a loss would also be a drag on the pace of innovation and reduce consumer choice as overcapacity is reduced and supply is brought more in line with demand. The remaining companies will be stronger in the long term. This blog is supposed to be about automotive technology, but the financial events of late have had a serious impact on future direction and developments.

It likely isn’t whether or not one or more of the Detroit 3 will fail. It’s when one or more will. Chrysler and GM are likely to run out of cash. Ford may be in a slightly less precarious position due to having exercised their credit lines prior to the crisis.

So the real issue before Congress is not how the companies will repay any government “loan”. It’s how long they can survive until they fail, and will that be after an economic recovery of sorts so that the economy can better absorb the failure rather than further compound our present banking crisis.

It mostly depends on how prolonged and how deep of a recession we have.