Slowly but surely the American auto-industry will die a slow and painful death.
My family never buys American cars. Other than some false sense of patriotism we never understood why someone would want to buy one. Koreans do it cheaper, the Japanese do it with higher quality, and the Europeans do it with more flair and performance. I've driven plenty of American cars because it is what you normally get when you rent a car and I have never really enjoyed my experience.
But all signs point to problems with the American auto industry. A recent WSJ article pointed out a sharp decline of truck and SUV sales in Texas. Yes, Texas. GM and Ford both make the majority of their profits from SUVs and Trucks and god knows if Texans, who are notoriously stubborn about their trucks, are giving up their gas-guzzlers you know that segment is going to take a turn for the worse.
Add on top of that the huge problem facing American manufacturers in terms of benefits. Both GM and Ford have huge outstanding pension and benefit costs that puts them at a significant disadvantage in the marketplace. Part of every dollar earned must be diverted not to making products better but to pay for work done in the past. It's like buying on credit, at some point its going to come bite you in the ass.
And just another blow to the industry. S&P just downgraded both GM and Ford bonds to Junk status. Yes JUNK status. Not only does this point out that most of the industry believes GM and Ford will default on their obligations but it makes it extremely difficult for them to raise money through the debt markets because they will have to pay a higher premium.
People cry out that America needs its auto industry. I say that is hogwash. I am bullish on the American economy and I know that America is resilient. Once America was the king of the Textile industry until cheap Asian labor took that market away. I didn't see the American economy collapse when that happened and I'm sure it won't happen this time either. America will find a way to bounce back.