U.S. auto industry has suffered deeply during recession

“Things have just fallen apart,” says George Hoffer, professor of economics at VCU and an auto industry researcher for more than 40 years.

The American automobile industry, specifically the “Big Three” companies of General Motors, Ford and Chrysler, has suffered deeply during the current recession. In fact, Hoffer says the American auto industry soon will be smaller than GM alone was about 30 years ago. A national debate continues on the industry’s future and the wisdom of contributing federal money to a recovery effort.

The American auto industry’s troubles are obvious, but Hoffer points out that other automakers, such as Japan’s Toyota and Honda, are also struggling in the current downturn and that they have made many of the same mistakes, such as an over-emphasis on building large vehicles. However, the American industry has been losing competitive ground for many years, making it particularly vulnerable to the recession.

Hoffer has researched the American auto industry’s loss of market share with his colleagues Edward Millner, professor and chair of the economics department at VCU, and Oleg Korenok, assistant professor of economics. Their research indicates that American auto companies have not kept up with their foreign cohorts in recognizing that “new product sells.”

“Japanese brands and to a lesser extent European brands have been much more aggressive in restyling and much more aggressive in introducing new products and that, according to our research, virtually explains over the last 15 years the decline in market share,” Hoffer says.

Hoffer says the auto industry needs another messiah vehicle, such as the SUV, to stage a comeback. Hoffer defines a messiah vehicle as one that already is in production but with one small alteration becomes hugely popular, allowing automakers to charge much higher prices to customers than the vehicles cost to make. Their popularity is often unpredictable to the automakers. Hoffer says the industry has had five or six messiah vehicles in the past 60 years.

“It’s going to come but I don’t see right now where it’s coming from,” he says.

Hoffer says the vaunted cultivation of green technology in vehicles will not give the industry the jolt it needs because the technology is still too far away to have a significant impact.

Without a messiah vehicle, the dream scenario that Hoffer envisions for a robust comeback involves – surprisingly – the stringent fuel economy standards that will debut in 2011. In his sequence of events, the economy first enjoys a speedy recovery this year, gas prices remain low and demand picks up among consumers. Then, with the present tooling of SUVs and pickup trucks and the high margins of those vehicles, the auto companies market to the American public the idea that these will be the last American vehicles of their kind ever made – and the public responds and flocks to snap them up.

“That would be the quickest way to a turnaround,” Hoffer says.