We have to ask: is there something about
the auto industry that causes these significant drops in sales? Can we expect there to be another such
decrease in business 20 years from now? Or is it something inherent in the US economy that causes these
downturns and the auto industry is just a victim? We have 3 major downturns in the last 50 years to look
at in order to find the answer.
The Early 1960s recession was characterized by astronomically high unemployment rates, incredibly high inflation
and a bad Gross National Product rating. These all worked together to cause consumer confidence in the
system to plummet, and caused a downward spiral to develop that destroyed a number of businesses. This in turn caused unemployment
to rise, and so the cycle began again.
The 1980s recession can be mostly attributed to the Iranian Revolution which took place in 1979. This revolution
caused a sharp increase in the price of oil all around the world. The new regime exported oil at what were
not only inconsistent levels, but at a much lower volume. This forced the price of oil up. The United States enacted a tight
monetary policy to control inflation, and this led to another recession.
The late 2000s recession was essentially started by
the collapse of the housing market. Then, bank collapses caused a sort of public panic. Also, the amount
of available credit spiraled downward, making it almost impossible for anybody to get a loan. As consumer
confidence continues to plunge, things continue to get worse. Many have called this recession the worst since World War 2.
At the core of all three recessions was something
that negatively impacted consumer confidence and therefore spending. It makes sense considering that consumer
spending accounts for about 60% of the country’s GDP. In a future newsletter we will report on the
comparison of consumer confidence changes and their relationship to sales in the industry.