Auto Sales Hurt by Housing Slump

NewsTrack - Business

Published: March 17, 2007 at 10:54 AM (United Press International)

Auto sales hurt by housing slump

FORT LAUDERDALE, Fla., March 17 (UPI) -- The sagging housing market is putting the hurt on auto sales across the United States, the Detroit Free Press reported Saturday.
Mike Jackson of AutoNation Inc. in Fort Lauderdale, Fla., said prospective car buyers' concern about home values is a phenomena he's never encountered before.
"They're reluctant to make a big purchase if they don't know what their house is worth, even if they don't want to sell it," said Jackson, whose company owns 280 new-car franchises across the country. "They don't know how it's going to come out."
UCLA Economics Professor Edward E. Leamer said low interest rates in recent years enticed people to buy homes and cars sooner than may have been prudent. Now homes aren't appreciating enough to give consumers a cushion and that is putting a crimp on auto purchases, he said.
"I think it's going to be a tough year for housing," Leamer said, "and it's a tough story for autos."
Auto purchases are down 8.5 percent this year for General Motors, Ford and DaimlerChrysler.




Though I knew the market for houses was in bad condition, I did not stop to really consider the effects it could have on consumers and other markets. As the market worsens, consumers mortgage payments continue to raise. Many homeowners are forced to take out loan after loan or sell their homes because they can not keep up with payments. This should have an effect on auto sales because consumers do not have the necessary money to make another long term investment when they aren't sure what the value of their home will be in 10 years. Consumers are less likely to make another large commitment when they are already struggling to keep up on payments. Betsy Schiffan is quoted as saying, "Since the housing industry accounts for about 14% of the national gross domestic product, if it were to suddenly crash, the ramifications would be felt across the country. Theoretically, it could be almost as crippling as a stock market crash. America's housing stock is worth about $12 trillion, while U.S. investors' investment in stocks, bonds and mutual funds was valued at about $15.6 trillion in 2001. " How can we aide the housing market, increase demand, and lower costs for consumers???

China's Economic Reform is too slow for U.S. liking

This article was very interesting to me. I did not know about China's economic problems, most specifically the way they affected the United States economy. I love Paulson's blunt attitude toward protectionist policies. This a great follow up to to our tariff/quota talks in class.

http://ap.lancasteronline.com/4/paulson_trade

"The administration is coming under increasing pressure to deal with a soaring trade deficit. It reached $763.6 billion in 2006, the fifth straight year with a record. The imbalance with China climbed to a record as well — $232.5 billion, the highest trade gap ever recorded with a single country." The United States wants China to reform its economy obviously because it is not helping our budget by any means. Because China's currency is undervalued by appx. 40%, imported goods are less expensive for US consumers and exported goods are more expensive for Chinese consumers. The democratic party claims the US government is not doing enough to protect its workers. But Paulson has a very different idea on protectionist policies. "Raising protectionist barriers and isolating ourselves from the gains of trade would hurt our economy," he said. "The long-term cost of protectionism — for us and for the rest of the world — is lost jobs and lost opportunity." Our solution: push China to reform its economy, which will raise the currency value.

Not only will we isolate ourselves, we will cheat ourselves in the long run through protectionist policies. do we protect our workers in the short run or deal with competition and better ourselves from it? If competition and trade take jobs away from workers, does that make trade a bad thing? The book we read before class (Naked Economics) hit on this topic as well. Just wondering what you all thought about this!