Auto Crisis Has "Real" Causes Beyond Consumer Confidence

The auto industry is so vast, sometimes you get the best high-level view of it based on related industries that are on the margins of the new-car business, like rental cars, auto suppliers and used cars.

It's like the way scientists sometimes get their best view of what's going on inside an atom or on the surface of the sun -- by inference, rather than looking directly at a phenomenon.

A column in today's New York Times, called "The Start of a Crisis, Through the Lens of Avis," got me thinking about all this.

The column states that the much-feared "credit crunch" is a bigger problem for corporations like Avis that rely on asset-backed securities than it is for consumers.

In the view of columnist David Leonhardt, that's potentially a political problem for the Obama Administration, which is having problems building popular support for bailing out the financial industry because it's hard to link the rescue of "Wall Street" to actual problems being suffered by ordinary voters on "Main Street."

I agree completely that the crisis in asset-backed securities is a problem of first importance. That's certainly true for the auto finance industry. And I agree that the Administration needs to do a better job of showing that bailing out Wall Street will help Main Street.

But the Times piece also quotes a Toyota dealer saying that consumers aren't having any trouble getting loans, and it suggests that readers probably don't know anyone who's having trouble getting a loan, if they want one. That's probably true for established, prime-risk customers -- especially at a Toyota dealership, since Toyota's finance arm hasn't had the problems the domestic auto lenders have had.

However, in my opinion the column understates the drop in demand for autos, for auto loans, for rental cars, for auto parts, for used cars and for new cars, and the for-real problems behind that drop. The problem isn't so much that car shoppers can't get loans; it's that there aren't enough shoppers. In February, for instance, U.S. auto sales were down 41.4 percent, according to AutoData Corp.

A leading analyst in another allied industry, the used-car business, provides the right perspective in a recent publication, summing up 2008 data: "Unemployment rose from 4.9 percent to 7.2 percent during 2008, as 2.6 million jobs were lost," said Tom Kontos, executive vice president of ADESA Inc., a used-car auction firm.

It's no wonder, then, that the Conference Board's Consumer Confidence Index is at record lows. I think it's a little precious to suggest, even indirectly, that "real" consumers aren't suffering real problems related to the credit crunch. Sure, poor consumer confidence is greatly magnifying the actual problems, but the crisis is not simply a question of consumer confidence.

Chart: ADESA Inc.