Trouble is nothing new in the car industry

In the beginning of the 1960s the Chrysler Corporation experienced that sales went down. Suddenly people did not seem that eager to buy these cars that looked like something to go to outer space with. The beautiful cars of the 1950s went away, and Chrysler's chief designer Virgil Exner developed new models. These models had a lower profile and some mean that this was the low water mark in American industrial design. However, Chrysler responded by developing a new engine, that not only would make the Chryslers, Dodges and Plymouths look like space-ships they would actually work like such. The engines were put into ordinary cars and loaned to the public in order to evaluate how they operated in ordinary traffic situations. The weight of the engine was around 200 kilos and it produced 130 HP at 3600 rpm. It could be driven on diesel, kerosene and jet fuel. As it turned out, even in those days with cheap fuel, it became too costly to use in transport for ordinary people and the project was terminated without the engines and the cars going into production.

Today Chrysler Corporation and the two other Detroit giants are in big trouble. Chrysler managed the crisis in the early 1960s by cutting down in their model programme. Production of DeSoto and Imperial was terminated and a programme with smaller cars as the Valiant and the Dart was presented and Chrysler survived. This time it will be even harder. The cooperation between Chrysler and Daimler was terminated because it showed impossible to merge these two companies corporate cultures together. In this process Daimler seems to be the survivor and Chrysler the casualty.

The situation after the financial crisis is that people are not buying goods that are expensive any longer in general, and in particular no new cars. One reason is the risk. People feel that they do not know what technology that will be used in cars in the future. Therefore you cannot be sure that the car you buy new will actually be worth anything, say three years from now. A second reason is that the models produced might not be attrictive in used car sales. Taken together the risk aversive consumer will wait and see.

This, however, puts the car producers in general, and the American car producers in particular in a great dilemma. They have chosen mainly traditional fuels and built big and fuelconsuming cars, that seems to end up at used car sales facilities en-masse. A car industry that does not sell new cars and whose old cars seems to be impossible to sell must be in big trouble. The question is if President Obama can save the day for the American car industry...

Read more at the Economist.