EVEN IN A downturn, western economies are driven by cars. In the US especially, many people will forgo payments on a mortgage before sacrificing their personal transport. After all, the car might be the only way they can get to work. Consequently, successful car companies and their finance arms have often proved fairly robust in the face of souring economic climates. But there are signs that the turmoil might tell upon them this time around.
The overall US market is at its lowest level in 10 years, and ratings agency Standard & Poor’s has put General Motors, Ford and Chrysler on ratings watch negative. Net charge-offs on auto loans were up 86% year on year in the first quarter of 2008.
In Europe, there is not yet the same cause for concern. But it might well be on its way, and sooner rather than later. Europe’s usual lag on the US economy could be diminished in this instance by lower reliance on cars. "In Europe, many people now consider a car to be a luxury item they are better off without," says Eric Spielrein, corporate secretary at RCI Banque, the finance arm of Renault.