Irene More Than Just Another Blow to Already-bruised Car Market
Many Americans felt that Hurricane Irene hit them when they were already down. With much of the country suffering through economic hard times, and with many areas of the East already having suffered through a series of weather-related hardships this year, the recent hurricane was especially crippling. Sure, the storm wasn’t nearly as devastating as some had predicted, but the aftermath is proving full well that it was more than bad enough.
That is exactly how it affected the U.S. car market, which -- like U.S. consumers -- has already suffered mightily this year. Just when car buyers seemed to be returning to auto dealerships, along came Hurricane Irene to throw yet another monkey wrench into the works. In the wake of the destruction, the insurance industry estimates the insured losses to be somewhere between $2.6 and $5 billion. On top of that, of course, are the losses of infrastructure like roads and bridges, which aren’t insured but will have to be rebuilt at taxpayers’ expense.
And that isn’t even the biggest part of the story. Estimates indicate that the Eastern seaboard accounts for about $12 billion per day in overall economic activity, and you can bet that during the weeks following the storm, economic activity in the region will be only a fraction of what it usually was. While some of that economic activity might simply be delayed, a portion of it -- vacations not taken, restaurant meals not eaten, movies not attended -- is simply gone for good. One might try to make the case that most of the consumers who decided not to buy a car over the weekend of the hurricane will soon do so, but that fails to figure in the number of prospective car-buyers who saw their lives irreversibly changed with the high winds and flood waters that devastated many areas of the East Coast.
Instead of being an engine of growth, over the course of the past several months the auto industry has continued to tip into potholes. Weak economic growth and persistent high unemployment rates have sent the stock market into a tizzy over the past several weeks, turning stocks sharply downward. The rapid drop in the stock indexes has many people taking a hard look at their finances. What stares back at them isn’t pretty, so while millions of Americans would dearly love to buy a new car, many of them are deciding that it is more prudent to wait. That will have a dampening effect on new-vehicle sales, which have already been hampered by a faltering recovery that has included far too little job growth. Since unemployment continues to be a huge problem -- causing people to be concerned about keeping their jobs -- there is little impetus for the consumer to buy a new car. Why take on more debt if your future employment is iffy?
What does this mean? For one thing, it means fewer car sales overall, which translate into less economic growth. In fact, fearful of a double-dip recession, many economists are happy to see any growth at all. In essence the car market is going sideways, and one interesting result is that car companies aren’t offering the big incentives that they used to. They, like most of us, have learned to run leaner. And like us, they’ll get by, but it would sure be more fun to be in boom times, wouldn’t it?
Tom Ripley is a Driving Today contributing editor who writes about the auto industry and the human condition from his home in Villeperce, France.