What’s a healthy level of car sales?

Examples abound of unsustainable excesses at home and at work. Easy money on credit was a massive culprit. Just ask Charles Prince, former CEO of Citi. He infamously explained why Citi kept making wacky loans: If the music is playing, you keep dancing. Who cares if you’re dancing off a cliff?

The massive volume of car sales is a quintessential example. Americans used to keep cars longer, but marketers convinced us to buy the latest whiz-bang features. Along came 9/11 and W told us to be patriotic and buy cars. Crazy-low interest rates made it very accessible. Hard to resist.

At the same time, Americans developed zero savings rates, which turned into negative savings by borrowing against our homes – especially when their values fell and foreclosures shot through the roof. It was dangerous, foolish and predatory. I’m not perfect. Did I really need to eat out so much or go to each of the Broadway shows we saw?

Interestingly, I just heard on NPR that it was Alfred Sloan at GM who initiated the concept of planned obsolescence. Every year the car models would get sexier, faster. With the prospect of Mitt Romney getting the top job there, I can only hope that his management-consulting days will pay off with developing an awesome strategy and focusing the best people to design the new GM.

Such a new company has to be profitable with 20% share of 10 million cars a year in the US. That’s down from the bloated 17 million in 2007 (pretty sure that’s the year). Shedding a few brands will help, but I am weary of the marketers and government pushing for sales to return to 15 million+ level. It’s clear we can’t afford, nor should we feel it’s necessary. Maybe we need Suzy Orman to check everyone at the dealer’s door, calculating if the shopper can afford a new car based on income, savings and expenses.

http://www.nytimes.com/2009/05/31/business/31car.html

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