The car industry faces many problems at moment. Firstly demand is falling because:
- Global recession, means workers have lower incomes and therefore avoid buying expensive items.
- Low confidence due to prospect of rising unemployment encourages people to delay buying new cars. The cars are luxury goods. You can get buy on keeping your old car for longer. In a recession we keep buying groceries, food and drinks (essential items) but luxury items get delayed. This is why haute cuisine restaurants will struggle in recession, but the likes of Burger King can actually do better
- Credit crunch. Many buy new cars with the help of personal loans or remortgaging house. Credit crunch has made loans less available therefore demand has dried up.
- Falling prices. With falling prices and prospect of falling prices people are delaying buying cars hoping they will be cheaper in the future.
The problems of the car industry are not just cyclical, but structural. General Motors and Ford were struggling before the recession. There is oversupply in the car industry and the American car firms have been losing out due to a lack of competitiveness.
Recently, the American car industries called for a new bailout of $35 billion. I discussed merits of car bailout here:
Even efficient firms are seeing a fall in demand. 1 mile from where I live in Cowley Oxford, BMW announced job losses at its highly successful Mini Cooper factory.