Wednesday, May 21, 2008

Car Makers' Boom Years Now Look Like a Bubble

By NEAL E. BOUDETTE and NORIHIKO SHIROUZU


DETROIT -- This decade has already seen burst bubbles in tech stocks, homes and credit. Now, it seems, another segment has fallen victim to irrational exuberance: the U.S. auto market.

Like investors who sent dot-com stocks or house prices to unsustainable levels, auto manufacturers in the U.S. have pushed their sales volumes to new peaks over the past decade. They invited customers to buy cars at employee prices, extended no-interest loans for up to six years and sold unprecedented numbers of vehicles to rental fleets -- all strategies that some analysts say drove U.S. auto sales to artificial highs.

Through most of the 1990s, auto makers sold a little over 15 million cars and light trucks a year in the U.S. market. That changed in the late 1990s: With gasoline prices low and many U.S. consumers feeling flush from the tech-stock boom, auto sales surged. Sales peaked at 17.4 million in 2000 and remained near 17 million for another five years. Heads of General Motors Corp. and Toyota said the U.S. was entering a golden age of the automobile. In 2003, Toyota's head of North American sales predicted the industry would soon be selling 20 million vehicles a year.

They were wrong. Sales started falling in 2006 and this year are expected to be right back where they were in the 1990s, at just over 15 million.

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