Will the Auto Bubble Burst?

In a recent article published in Business Week, http://www.businessweek.com/bwdaily/dnflash/mar2005/nf20050321_4309_db084.htm, the author points out that with oil prices and interest rates rising, fast times for auto and SUV sales are ending. Has the cost of buying one of these machines overcome the benefit of having one? With the interest rates rising and the cost of gas rising as well, one can not afford to drive, let alone buy an SUV. The author also points out that the problems in the auto industry goes well beyond GM. As stated before, with interest rates rising and the price of oil sky-high, Americans may be nearing saturation, with much less incentive to buy new cars for now. The sales slowdown may result in a stunningly nasty crash.
The end of the so called auto bubble may create conditions for a new wave of inexpensive imports as domestic manufacturers weaken and consumers get even more price-conscious. GM's bad first quarter may signal a very rocky road ahead. What do you think? Will car manufacturers continue to decline in their sales and will we start buying cheaper foreign cars in replacement?


Drake said...

I think that the Auto Bubble will Burst!!! In fact I hope that it does. It would finally bring some smarter thinking to the table, and hopefully America could get some vehicles rolling on its roads that get better than 17 miles per gallon. It seems ridiculous with all of the technology that we have at our fingers today that we cannot get more miles out of a gallon of gas than we could almost 50 years ago. It seems to me nothing has changed. Cars in the 50's could get 17 miles to the gallon, and they were nothing compared to the vehicles that we have today. I think its all a big conspiracy to make oil companies rich. There are vehicles and technology to make cars get over 100 miles to the gallon. That's right 100 miles plus to the gallon. The technology is just not being used or developed like it should because of greedy oil barons.

Dr. Tufte said...

-1 on Stockton's post for a poorly formatted link.

Both the post and the comment are good.

I'm dubious of claims that there are easy ways to get more miles per gallon - there are usually tradeoffs that are not spelled out.

However, as to average miles per gallon, most of the improvement in cars has come in the form of fewer tune-ups and reduced emissions.