Week of January 25, 2009

This week I'm engaging in a meditation as I noted an absence of epochal events. Or at least there were none that I could discern.

As we make our way through the worsening economic climate and the protracted downturn which is now global in scope, we must begin to contemplate various scenarios for the automobile industry both at home and abroad. Whither cars and whither two wheeled vehicles?

Prior to the crash—and that does not seem too harsh a term—we were seeing an extraordinary phenomenon taking place in East Asia, specifically, in China, India, and Thailand. First these countries managed to complete successfully the early stages of industrialization, and then they began to develop home markets for personal transportation. China was particularly exemplary in this regard. For several years during this decade the ownership of automobiles increased by double digit percentages, and, more recently, India seemed poised to replicate the Chinese experience.

If not a transportation revolution, this is surely a vastly accelerated transformation, one of the sort that one sees seldom enough as to warrant cogent analysis.

In the United States an even more rapid transition occurred a hundred years ago as America's street railway systems were challenged and then supplanted by mass produced, gasoline powered automobiles, mostly Fords initially. The American automobile industry grew by more than two orders of magnitude between the years of 1900 and 1910 and continued to grow strongly up until the middle nineteen twenties when it began to be saturated. The Chinese auto industry, vibrant as it has been, has yet to achieve a similar success.

But then America has been like that. Similar extremely rapid adoption patterns manifested themselves with radio, television, electrification, home appliances, and earlier with street rails and the bicycle. If there is such thing as a national character and if the U.S. has one, it is that of the collective enthusiast early adopter.

It wasn't like that elsewhere. Mass ownership of automobiles came to Europe only subsequent to World War II. France and Germany both enjoyed nearly a ten year lead over the U.S. in manufacturing automobiles but they were easily overtaken because their home market responded desultorily.

The East Asian experience with automobile seems to be something in between the American explosion of ownership and the measured pace of European adoption, and appears fundamentally more like the latter in that cars do not seem to be driving patterns of settlement or changes in social institutions as happened in the U.S. Rather, the automobile has become an expression of growing personal wealth and of the emergence of a mass middle class. Nothing really similar, incidentally, could be discerned in the U.S. of a hundred years ago. America had a middle class of long standing, and, while the average wage was rising, it wasn't rising rapidly. Different dynamics appeared to obtain in the adoption process.

Now the rapid expansion in automotive ownership may be coming to a halt. Suddenly in China, and, to a lesser extent in India, the flood of exports that has supported the growth in wages and expansion of the middle class has abated. In China, especially, unemployment is rising, and the mighty economic engine is in danger of seizing up if not stopping entirely. And, just as suddenly, the enormous demands that China was making on the World's oil supply have declined.

So what happens next? In the U.S., the storm center of the downturn, new car sales have plummeted by roughly 30%, enough to threaten the very survival of a native automotive industry. So what about China and India?

Hard times have come to these enormous Asia tigers later than was case here. Neither was faced with a housing crisis or financial bubble in the preceding year, and the factories kept churning out merchandise for the seemingly insatiable North American market. Now those goods are finding fewer ready buyers. China also holds inordinate amounts of U.S. Government securities and American dollars both of which are suddenly of questionable value.

I would assume that with some delay the same havoc will be visited upon the Chinese auto makers as on those residing elsewhere. Their vehicles are mostly pitched at the home market, and the home market shows signs of collapsing.

At some point, one assumes, the world economy has to right itself, but that might not be for years. If it is a strong recovery, a race will commence for acquisition of the world's dwindling oil supplies which will, unfortunately, not be perceived as dwindling after a lengthy period of reduced demand. And what will be the consequences of that? They will almost certainly be unfortunate.

Looking Backward

If we attempt to place the current travails of the auto industry in a historical context, we find the evidence somewhat contradictory.

During the period between 1900 and 1970 industrialization occurred only sporadically in the developing world and that in turn limited the size of the overall maket. After the initial wave of industrialization which occurred in Europe throughout the nineteenth century, the Industrial Revolution appeared to lose momentum, particularly in the capitalist world. Countries that are wealthy today such as Singapore and Korea were not so in the early twentieth century, and true industrial revolutions occurred largely in the Soviet bloc where heavy industry was stressed and the consumer goods were scanty and unattractive. No one was predicting what occurred recently in the Republic of China and India, and certainly no one envisioned mass automotive ownership in those places. People, it was assumed, would ride oxcarts there till the end of time.

If we turn to the developed world of the early twentieth century, we find that technological revolutions of whatever sort were profoundly retarded by the Great Depression. Automobile design remained remarkably static during the thirties, and electronic television and the electronic phonograph both developed in the late twenties, didn't really come to market until after World War II. Diesel engines, perfected in the twenties, were not adopted by railroads until the late thirtties, and were not used in most merchant ships until after the War. Airlines, which seemed on the point of becoming mass transit systems in the late twenties, lost ground steadily in the early thirties, and did not revive until the end of the decade. Even innovations in retailing were suppressed. Shopping malls and supermarkets, both dating back to the teens and twenties of the century, did not proliferate until the late forties.

So here we are facing economic distress of unknowable magnitude and simultaneously trying to remake the automotive industry into something green while it is struggling for its very survival. If the thirties are any indication, a green automotive revolution, undertaken in these bad times, is unlikely to succeed.

One may, however, draw more encouraging examples from the consumer revolution of the late seventies and early eighties which saw the introduction of the mass market microwave oven, the VCR, the big screen television, the personal computer, and the mobile phone. Times were very bad here in the U.S., with double digit inflation and unemployment, but consumers managed to support not one but several revolutions in personal electronics, mostly spearheaded in Japan.

This whole issue probably wants further consideration because the past gives us so little indication of what to expect. Perhaps we will revisit the matter shortly.