A "Seismic Shift in Consumer Preferences" for the Auto Industry

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Total vehicles sales have dropped 12% in the U.S. since March 2007. Why? What does this mean for the future of the auto industry? Double-digit declines have occurred for four major carmakers (Ford, GM, Toyota, and Chrysler) in the last year. The Wall Street Journal attributes this to three reasons: (1) high gasoline prices, (2) a weak job market and (3) a "credit crunch" that now requires consumers to have higher credit scores and larger down payments.

Total vehicles sales have dropped 12% in the U.S. since March 2007. Why? What does this mean for the future of the auto industry?

Double-digit declines have occurred for four major carmakers (Ford, GM, Toyota, and Chrysler) in the last year. The Wall Street Journal attributes this to three reasons: (1) high gasoline prices, (2) a weak job market and (3) a "credit crunch" that now requires consumers to have higher credit scores and larger down payments.

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The sales slump has hit almost all major models, except for fuel-efficient compact vehicles. "This is a very challenging external environment, reflecting a seismic shift in consumer preferences," said Ford's Mr. Farley.

Such a shift will necessarily aid the growth of alternative vehicles, such as plug-in hybrid electric vehicles (PHEVs) and neighborhood electric vehicles (NEVs) that offer far more fuel savings over the lifetime of a conventional car. Companies that currently offer such cars are in the minority now, but I predict that major automakers will begin to take their lead and develop similar vehicles in order to increase their sales.