AutoNation's Car Cassandra Warns Of Big Market Crash

Bertel Schmitt
by Bertel Schmitt

Automakers look with worry at the tanking European market, but have great hopes for an advancing American. Not so fast, says Mike Jackson, CEO of AutoNation Inc. He sees a day of reckoning follow a few years of good auto sales.

“There is a day of reckoning coming for the U.S. economy and for America,” Jackson said at a J.D. Power conference in Orlando, with Reuters taking notes.

From 2004 to 2007, Jackson warned that automakers must stop producing too many cars, sold with generous consumer incentives and easy credit. In 2009, the U.S. auto market dropped to 28-year low after more than 10 years of sales that had averaged nearly 17 million. Now, he is warning of carpocalypse II.

Jackson said the federal monetary policies of low-interest rates and sharp increases in the balance sheet of the U.S. Federal Reserve are two major stimulus efforts that may come back to haunt American consumers.

Lacey Plache, chief economist for Edmunds.com, agreed with Jackson’s assessment, but like Jackson said it was difficult to peg the timing of the hit to the U.S. economy.

Bertel Schmitt
Bertel Schmitt

Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.

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  • Oldyak Oldyak on Feb 11, 2013

    The Car buyer is in a real pinch right now.He/she has been diligently paying off credit cards and trying to put money into savings and then,looks for a car to replace the one that would have been replaced 5 years ago...OUCH! Right back into the massive debt hole we go!!! Hard to win in this situation.

  • Big Al from Oz Big Al from Oz on Feb 12, 2013

    @Pch101 Quantitative easing will eventually cause high inflationary pressures. Interest rates will rise, but the economy will not achieve significant growth to combat inflation, you will still have high unemployment which will keep wages growth down. Not good. The action that should have been taken was to remove the dead wood from the economy. This hasn't occurred. The US's tax as a product of GDP is 27% and government spending as a product of GDP is 38%. The US and Euro/Japanese markets need to restructure. Fiddling and kicking the can along will not achieve anything other than prolong the inevitable. The Tea Party on the right want to reduce social welfare and the left want to increase taxation. What needs to occur first is a wind down of subsidisation across all industries and start implementing a user pays system and gradually increase taxation. The 3 significant economic blocks US/Euro/Japanese have in effect devalued currenies already attempting to export themselves out of debt. You might not see this because you live in the middle of it. Who are they going to export to? The three major consumer market are broke or living on borrowed money. The other global markets export to those 3 markets and are creating much larger inter-country trade between themselves. The US over produces significantly in most industries and companies are forced to sell products at a reduced profit. This affects the bottom line. Just look at the Chev pickups of late. One of the reasons why we pay more for cars in Australia is we don't have over a similar over production problem as the US. Maybe the people of the US/Euro/Japan are paying to little for their expected lifestyle. Like I stated a reduction in the standard of living is coming your way within several years. Another issue will arise over the next 2 decades is the commodities will no longer be traded in USD. The trade in USD for commodities, this has in the past created a more stable market. Interesting times ahead for the US/Eurozone/Japanese.

    • TW4 TW4 on Feb 12, 2013

      First, unemployment and inflation have an inverse relationship. As inflation rises, unemployment tends to fall, and inflation addresses the problems with sticky wages. As Bernanke has said himself, the US does not have sufficient inflationary pressures from the expansion of the money supply. As unemployment falls, the QE taps will be automatically turned off as entitlements fall and tax revenues rise, which will dampen inflation. We've already been through stagflation once, I doubt we will overheat our currency again, but you never know. Second, the US is not trying to export its way out of debt. We have the opposite problem. We've been the benevolent/wasteful importer of mountainous piles of superfluous junk, routinely racking up trade deficits in excess of 5% of GDP during the 2006-2008 pre-collapse. We will be eliminating imports, starting with petroleum, which contributes as sizable $300B chunk of our $700B-$750B trade deficit. We will increase coal exports to Japan and the EU, but it's a drop in the bucket. If we are reducing our trade deficit and converting imports into domestic energy and manufacturing growth, our currency will appreciate. The EU and Japan base their economies on a strong dollar. They are in an austerity holding pattern, waiting for a rising US dollar (relative to other currencies) to increase EU and Japanese exports and reduce the total trade deficit with China. I'm not sure about the last part, but I've heard that the US-Chinese trade channel is stuffed, and strengthening the dollar will drive down the deficit, rather than open it. Dangerous game, but we've been living dangerously for over a decade regarding US-China economic policy.

  • Big Al from Oz Big Al from Oz on Feb 13, 2013

    @TW4 Normally, rising inflation will reduce unemployment. But not in this case. The amount of money that has been pumped into the US economy is staggering. Historical. The reason why is the US economy is facing a "third world style" collapse, large currency devaluation and high inflationary pressure. The changes required is about 9%-10% of GDP. This means an increase of taxation or a reduction in spending. This kind of change causes civil unrest. If the US can manage this rate of change it will tread water and not pay down any of its existing debt, so more is required. The problem is similar to Greece, for every 1% reduction in government spending the economy (GDP and growth) will shrink by a far greater amount. The exact amount I couldn't tell you, but I would imagine several percent. So the required 9%-10% reduction in spending will reduce economic output by 25%-35%. When this occurs unemployment will rise to levels comparable to the Great Depression or worst. If taxation is raised to meet expenditure, no gain will be made other than reducing money available to spend in the economy. Hence, a similar outcome will occur as the reduction in government spending. To expand the economy, more debt is required. But the gain will not create enough government revenues to relieve debt. The US will be unable create enough expansion in its economy to offset its borrowings. What I'm saying in effect is the US urgently needs to restructure all aspect of economy. The "export" comment is not totally true, but this is an outcome of the policies by the US/Euro/Japanese central banks. To improve these economies export is required. When in debt there are only two possible outcomes, pay down or go broke. Like any business or household to pay down debt requires sacrifice. From what I can gather not one country is making the required sacrifices. Look at the percentage changes the Spanish and Greeks have made. These changes are small in comparison to what is required. Borrowing, "printing money", smoke and mirros will not create sustainable growth, once the government reduces its any form of stimulation the proverbial wil hit the fan. It isn't sustainable for much longer.

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