What the future of the auto industry will look like

Many – probably most – won’t survive. That shouldn’t be surprising, as firms rose and fell in the early years of the internal combustion engine, too. Who today remembers the Mercer Raceabout, or Essex, or Nash Statesman? All were cutting-edge cars in their heyday. But their heydays all turned out to be brief.

Of course, nothing is certain about the auto industry these days. It is shaking to its very foundations. Toyota is losing money. A niche Swedish sports-car maker has bought country icon Saab. Hummer has become less fashionable than Hyundai. Chrysler’s next model may be based on the Fiat 500, a car so small that it looks like a Dodge Charger’s lunch.

Then there is General Motors, ward of the state. Those who remember GM as the producer of such iconographic autos as the 1957 Bel Air may see its fall as a shame. Those who bought the awful 1970s Chevy Monza (or its evil twin, the Oldsmobile Starfire) may consider its bankruptcy well deserved.

The US government has already invested some $80 billion in tax dollars in GM and Chrysler. It probably will be at least a year before the Treasury can even begin to plan when it might sell government-owned shares in the company to recoup that cash.

Will the US ever get that money back? There are “reasonable scenarios” under which the taxpayer investment will be returned, said Ron Bloom, President Obama’s high-profile auto adviser, at a June 10 Senate hearing. “But by no means would I say that I am highly confident that will occur.”

That does not sound like a ringing endorsement, does it? Postbankruptcy, both GM and Chrysler will be shorn of debt and overhead, and theoretically will be better able to compete in a tough market. The key may be to what point US sales recover.

In January, the pace of vehicle sales in America fell below 10 million units annually for the first time in almost three decades. Some analysts see sales staying in a trough for years, as newly frugal consumers learn to do without leased Audi Q7s, and turn to the used-car market, or (gasp!) keep driving their old cars instead.

Others think that is too pessimistic. In the US, about 13 million cars a year are scrapped due to advanced age, according to the International Motor Vehicle Program, a research consortium founded at the Massachusetts Institute of Technology in 1979. (Aren’t the Monzas all gone by now?)

That loss might put a floor under demand. “The global auto industry will recover to pre-crisis levels as the global economy recovers: There is no paradigm shift at hand,” says a recent research paper from the IMVP, a nonprofit funded by donations from auto firms, as well as other sources.

POST-TROUGH, THE U.S. AUTO industry at least will look a little greener. Besides start-ups, the traditional US automakers are moving to hybrid models. Ford’s new Fusion hybrid is doing well in showrooms today, relatively speaking. GM is making a big deal out of its forthcoming Chevy Volt, an extended-range plug-in hybrid that will be available next year.

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