Inflation: the Auto Industry’s Latest Woe

Commentary

My wife likes a banana at breakfast. In Manhattan, where I live, pushcarts sell fruits and vegetables, and it’s easier to buy a banana from a stand than from a store.

It’s cheaper, too. The pushcarts pay no rent and few taxes. The bananas used to be five for $1, or $0.25 each. I’d pay my quarter and take one. A month ago, they went to $0.35. Yesterday, I paid $0.40 for my banana.

This brought home the message that inflation really is here. I assume we are seeing it on new cars and trucks, too, and not just from the rising cost of materials and worker health- care benefits.

What’s more, the falling dollar is pushing up prices of imported cars and components, and there always are dubious new safety regulations adding cost, as well.

The government continues to claim that 5,000 lives will be saved each year by some new rule. I fully expect one day to hear some safety researcher say adding glare-proof bumpers will save 5,000 lives a year. New emission controls add still further costs.

The typical new car lists for nearly $30,000, according to J.D. Power. I expect this to go to $35,000 within five years and $40,000 after 10; maybe even $50,000.

Auto makers once handled price inflation by stretching out payments from 24 months to 36, but now we even have 84-month loans. Seven-year loans have got to be the limit. Maybe this is why we get so excited about the Tata Nano and its $2,500 price, even though we know there will be no Nano offered in the U.S.

What can we expect from steadily rising vehicle prices? Consumers likely will keep vehicles longer, for one. That’s OK because cars and trucks are almost bulletproof today. Low-priced cars also will move up-market. Cars that used to be priced $16,000 will sticker at $25,000. It’s happened in Europe already.

Expect a spate of cheap new cars to be introduced, too. Not the Nano, but more cars built in Korea, China, India and anywhere else workers are paid next to nothing.

It’s going to be tough. If the Midwest is to survive, if we are to save those tens of thousands of good-paying manufacturing jobs in our industrial heartland, government, from Washington to California needs to stop treating the automotive industry as the enemy. Our next president should ask car executives what’s to be done.

We will survive $4-, $5- or $7-gallon gasoline. Europeans have, so we will too.

Properly managed, there still is a bright future for the auto industry. Today, the world builds about 70 million light vehicles a year. That number will grow to 75 million or 80 million in five or 10 years. China, India, Russia are just starting their automotive ages as are “the Stans” of Central Asia, including Kazakhstan, Kyrgyzstan, Uzbekistan and Tajikistan. Brazil is booming, and a new car-hungry world is emerging east of the Oder River in Germany.

Do-gooders talk about mass transit, but in most of the world mass transit is a bus, and anything is better than taking a bus.

Jerry Flint is a columnist for, and former senior editor of Forbes Magazine.