Detroit’s Perfect Storm sets Sales up for Bailout
By Jeffrey Adik
Copyright © November 2008 Jeffrey Adik
Intraduce, LLC | All Rights Reserved

The domestic automotive crisis embodies the perfect storm. The gale-forces our economy now faces are the result of a lengthy series of events that have effectively frozen consumer lending and generated an extraordinary global lack of trust across all investor categories. Attempts by the international market to hedge the crisis, through US currency devaluation, have only accelerated problems. The doubling of fuel prices had an immediate impact on the US consumer goods market, perhaps most visible in the automotive industry. This dramatically affected consumer buying habits, whose interest has shifted away from operationally expensive SUVs and resulted in substantially devalued new and used gas guzzlers.

Automotive demand has now fallen to the lowest levels in 20 years, and had irreplaceable impact on the largest profit category of the industry. While we have seen a huge direct impact on the market’s perception of the auto industry’s viability, an even deeper crisis looms: Leased vehicles, a large proportion of which fall into the SUV & lower fuel-economy categories, are still on the industry books. These vehicles will be entering a redefined market with substantially lowered demand, and therefore require significant price discounts.

Auto Inventory and Demand: Vehicle production has been cut, of course, yet the length of the global automotive supply chain is so long that reaction time to market conditions takes a seeming eternity to resolve. During this period, the international community has experienced a growing reduction in orders for U.S. destined exports. The U.S. dollar is now resetting to an appreciably higher value, in the global hopes that the largest consumer economy will regain its appetite for