Wednesday, February 18, 2009


Out of a job? Why not buy a car?

GM and Chrysler are still having problems. In addition to the $25 billion they got in the first round, they’re asking for another $14 billion. And on top of that, they’re planning to cut 50,000 jobs, all told.

But isn’t that a self-perpetuating cycle? This mode we’re in of responding to economic difficulties by cutting jobs is a monster eating its own tail. Jobs have been cut all over, from Starbucks and Macy’s to Microsoft and IBM, and our unemployment figures are at a many-decade high.

And that directly affects the car companies, along with anyone else who wants to sell anything.

Most people replace their cars well before they need to. Not I: I kept my previous car for 13 years and 248,000 miles, and my current car is almost ten years old, with more than 170,000 miles on it. But I’m in the minority; most people will replace a car while it’s still perfectly usable.

That makes most new-car purchases discretionary. If you’re out of a job, you’re not going to buy a new car any sooner than you have to. All these discretionary sales are left at the wrong end of the highway, as people instead put less money into maintaining their old cars.

That cuts the car companies’ bottom lines.

The only way out of this mess is to keep people in their jobs, get people back into jobs, and get us all buying things again. Cut costs, cut travel, cut salaries. More job cuts aren’t going to do it.


Ray said...

But more job cuts always seem to please the Great God of Wall Street, sending the slashing company's stock soaring. And as long as the current quarter's bottom line is all that our glorious CEOs are concerned with, I can't see that cycle ending.

Well, not until they've slashed until the CEO is the last one standing. Then they will just retire comfortably with their accumulated millions (or billions, these days).

Not that I'm at all cynical, you understand...

scouter573 said...

The thought I find fascinating is that the very management team that brought the company to a point where they have 50,000 excess employees are clearly the right people to decide which employees to get rid of and to keep running the joint. Yes, this time, they'll do it right! Yah, you betcha.