Can The Economy Recover Without Detroit?

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Detroit is now viewed as a metaphor for the car industry in the US, even if GM (GM) and Ford (F) are the only public companies based there. For purposes of domestic car sales, it might as well be the home of VW and Hyundai. And, word has come that the head of Nissan told Reuters that the market in the US will not recover until 2009/2010.

Toyota, Nissan, Honda (HMC) and their European rivals can do better in America than the home team, but not too much better. The pie still has to grow for all to do well. This week GM cut its estimate for total 2008 US vehicles sales to 15 million.

The car industry, at least those companies based in the US, is no longer a big deal for Wall St. The market caps of the companies are too small. But, the industry is a fair proxy for the economy at large. Fifteen million cars at $25,000 each is a great deal of money.

The auto firms will announce April sales now and most guesses are that they will be bad. US companies my face double-digit drops from last year. No one in the industry is likely to say things are going well.

The last few days there has been some optimism abroad. GDP grew last quarter, a little. There has been much talk that the credit markets are thawing. Oil prices have come down some with a rally in the dollar and word of better supplies.

All of this news is misleading. It is hard, if not impossible, to find better standards for consumer sentiment than car and home sales. For most Americans, these two things are the most expensive property they own. Being able to buy them and pay for them are at the heart of the balance between income and spending. Other facts about the economy are secondary, especially when it comes to the financial health of the great majority of citizens

There cannot be a recovery without Detroit.

Douglas A. McIntyre