Phony Auto Boom

Robert Kurz

The European and US debt crises are eagerly moving ahead, but this seems to have little impact on the global economy. The German export industry, in particular, believes it is springtime. The car companies are leading the way, reporting ever new record figures. This proves that auto production continues to be a key sector of capitalism. The branch gives an example of where the economic journey is headed. So are the optimistic forecasts that want to see a real economic upswing without end for the coming decade justified?

It is worth taking a closer look at the structure of the auto boom. Sales in Europe continue to decline. On the other hand, exports to the emerging markets, especially China, and the USA have virtually exploded. For this economy to be sustainable in the long term, consumption by the masses  would have to fueled with small and mid-range cars, while the expensive premium segment would be reserved for the small number at the top. But the opposite is the case. The driving force behind the supposed car miracle is the ostentatious luxury cars from Daimler, BMW or Audi and the sports cars from Porsche.

In China, as in the USA, the gap between rich and poor is widening. This is a social problem as well as an economic one: If mass car consumption is largely absent among lower incomes, it is a sign of the febrile nature of the luxury economy. It is an illusory boom based on pump-priming and financial bubbles.

The solvent new middle class in China, whose size is dazzling because of the sheer mass of its population, has no solid foundation. It is linked to the speculative run-up of largely vacant apartment and office buildings, sports stadiums and other investment ruins orchestrated by corrupt party cadres at the municipal and regional levels. Credit or irregular income finances their luxury consumption. The situation is very similar in the United States, where the permanent financial injections from the government and the central bank reach only a minority.

It doesn’t take the next financial crash to see that the premium global consumers have overreached themselves – even in the much-praised German wonderland: The big cars are hardly ever sold in cash anymore, instead, they are leased. They can be purchased for a comparatively modest monthly sum. Then the financing air becomes thin, because some people have already reached the limit of their income.

However, the high-horsepower prestige cars are so highly equipped that repairs quickly become necessary. What was still relatively cheap to repair in a pre-electronic small car starts in high-priced cars at 800-1000 euros. It is not only in Germany that leased gems accumulate in car dealerships and repair shops because their proud users cannot pay for the repair (or the next installment). A small hint that the premium-class car boom could be just as phony as the real estate boom.

Originally published in Neuen Deutschland on 06/04/2012

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