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Auto bailouts: are we saving the wrong industry?

Posted by admin on May 12, 2009 in Misc.

Unless you are a follower of baseball statistics or a political junkie, you probably think that Nate Silver is the name of your cable installer or the tech guy at work. But he was named by Time Magazine last month as one of the world’s most influential people by using a myriad of statistical data to analyze first baseball then politics. His main claims to fame are predicating that previous baseball door-mats the Tampa Bay Rays would achieve success last year and calling 49 of 50 States and every single Senate race in the last American election. Silver, therefore, is either a great analyst or on the mother of all hot streaks.

In this month’s Esquire magazine, Silver looks at Federal Highway Administration statistics and housing prices and wonders if the American love-affair with the automobile is ending (I will give you a second to look at the Megan Fox pictures on the site as well…ok, I’ll give you a couple of minutes). Specifically, Americans have driven less for 15 consecutive months and cities with the largest housing price declines between 2004-2008 (Las Vegas, Detroit and Phoenix) are heavily car dependent cities while urban regions with the largest housing price increases over the same period have, relatively speaking, better alternatives to the automobile (Seattle and Portland, Oregon).

Fifteen months is a statistical blip when universal automotive ownership has been available for the last 40-50 years. Silver’s analysis of housing prices also starts at the absolute peak of home ownership in the U.S. which suggests some selection basis in his methodology  (often over-looked by analysts is that home ownership began to decline in 2004; it took 3 years for housing prices to begin falling so we are actually in year five of a housing decline).

However, has Silver hit on something (albeit very early in the curve- as he is known for doing)? Conventional thinking is that the American automotive companies are struggling because they are poorly managed (which is true). But, because the companies are more mature, is their relative struggles lately merely a harbinger of the decline of the North American automotive market as a whole? Are Honda, Toyota, VW merely to suffer similar fates in North America? The move in production and consumption of automobiles in China and India may be a recognition of both a new untapped market and a signal that industry realizes that we may be on the downside of the demand curve in North America.

The obvious culprit of the decline in miles driven is the price of oil. However, if you live in any large urban center, you also know there is a movement towards re-populating the central core with people. Quite simply, governments no longer have the fiscal capacity to service the tradition suburb- the cost of extending water, electricity, sewer lines to suburbs is too great or the money could be better spent on repopulating the core or in nodel development (see new urbanism).  On a more practical level, people are fed up with commuting 2-3 hours a day to work.

If, indeed, Silver’s analysis points to an emerging trend, is government propping up the wrong industry? Political expediency dictates governments to the left of centre save union jobs but could those same union jobs not be shifted to businesses who manufacture light-rail, subways, trains and other alternatives to the automobile? If we are witnessing the beginning of a trend, could government once again be fighting yesterday’s battles?