At the same time, substantial gains in quality and reliability were leading consumers to keep cars longer; all told, the number of cars in America rose by nearly 25% in the decade ending in 2007 while the driving-age population grew by less than 15%. The ratio of cars to licensed drivers, long greater than 1-to-1, continued to increase.
"Scrappage," or the rate at which cars were junked, had dropped decade by decade, from the 1970s rate of more than 7% a year to about 5.5%, which meant that the average age of cars on the road was increasing. Car buyers could put off replacement purchases.
In 2008, of course, the wheels had come off. The collapse of the financial markets choked credit; rising unemployment and sinking house prices sapped household budgets; and summer brought $4-a-gallon gasoline, a particular disaster for the Detroit Three, with their anemic offerings in small cars.
By January 2009, the seasonally adjusted annual rate of sales (SAAR) had collapsed to 9.6 million. Extrapolating from this trend, many pundits issued dire forecasts for at best a slow and meager recovery.
To be sure, GM and Chrysler needed massive restructuring of both operating costs and liabilities, such as legacy health care. But if this could be accomplished—and if the companies, particularly GM, could be put under new management, they could potentially be viable and even highly successful.
Predicting with any accuracy how much of the $82 billion of bailout money will ultimately be recovered is a difficult exercise. If the return of the government money were managed as it would be in the private sector, the government would have a very good chance of getting back all of its money, including the early bridge financing. But with the White House justifiably eager to be out of the auto business, premature exits may occur. If we ultimately lose $10 billion or $20 billion on the auto rescues, that seems a small price to pay for averting a major economic calamity in the industrial Midwest and helping keep the national economy from spiraling from deep recession into outright depression.
Source: The Wall Street Journal, September 18, 2010