No Jobs, Yes Cars?

Depending on whom you believe, the unemployment rate is either just shy of 10 percent or in fact higher when you account for job seekers who’ve given up looking. The economy lost more than 450,000 jobs in June. Ouch. But does that mean the mild recovery in the auto industry will peter out? Or will the mild “rally” in the auto biz stay on track?

Chances are good. There’s life again in the leasing market, and new car sales have picked up, mainly because anyone who wants a vehicle can get a terrific deal. The auto market can almost be seen as operating in a different realm from either the housing market or the consumer-good market, as well as the stock market. Halfway decent credit terms are available and combined with a purchase that’s too steep for most people to use cash for, but open to serious haggling. And in the end, you’re talking about a loan for less than $30,000, in many cases. A far less complicated proposition than a home loan for $300,000.

Plus, cars wear out. In a hurry, even thought they’re far more dependable than they were a decade ago. You can hang in there with an old fridge or dishwasher for a few more years, but once the transmission starts acting up, you start thinking about how your daily drive should be a bit more stress-free. That can be worth $300 a month.

It’s worth remembering here that weakness in the finance and housing sectors is the result of wildly irresponsible risk being shaken out. Painfully. This has squashed credit, the life-blood of the car business. But a company like Toyota hasn’t plunged itself into irresponsible risk-taking—it just can’t get customers into a loan.

Even in a rising-gas-price world, Toyota could shift its production to more fuel-efficient cars and manage a cyclical shift in consumer preferences. It would in fact be easier to finance these buyers because they’d be looking at smaller, less expensive cars, and therefore lower down-payments, monthly payments, and so on (assuming high enough income and a downsizing urge). We’re looking at a healthy carmaker here that makes cars people want to buy.

So while there’s definitely structural change afoot in the car business, there isn’t in the car buying process. And as vehicle is a necessity of life for an enormous number of people, we can expect the auto market to achieve some kind of sustainable level over the next year and a half. Once we’ve finally chewed through what AIG Financial Product inflicted on us and the relatively meager American ambition to obtain personal mobility.