#ThanksObama

A Short Look at the Auto Industry in 2008-2016

As this country gets ready for a new president we took a look back on some of the events, legislation, and trends that have been proliferated over the past 8 years. The Obama administration, like all administrations, has had its ups and its downs — especially when analyzed through the lense of the automotive industry. However, the outgoing administration has had an interesting effect on one of the world’s biggest economic drivers, the American Auto Industry. For good or for ill, industry standards have changed to make cars cleaner, safer, and more regulated. From Cash for Clunkers and Black Box laws, to backup cameras and the GM bailout; here is an in-depth look at the automotive market under the Obama administration.

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2008 was the start of an immense crisis for the automotive industry in the United States, a result of the global economic recession which started approximately in 2001. This crisis was made worse by the increases in gas/oil prices in 2005 caused ostensibly by sustained conflicts in the Middle East.

During this crisis, multiple brands of cars were discontinued sold off during this time by struggling American automotive companies. The list of brands that these companies divested themselves of includes Chrysler’s Plymouth brand, Ford selling off Volvo, Jaguar, and Land Rover while phasing out Mercury, and GM’s selling or discontinuation of Saab, Pontiac, Hummer, and Saturn, as well as it’s Oldsmobile division. In fact, both GM and Chrysler, members of the group known as the “Big Three” along with Ford, requested government bailouts and were nearly forced into bankruptcy and liquidation. The U.S. and Canadian federal government’s bailed out these companies to the tune of $85 billion in order to prevent massive job loss and a further destabilized economy.

Following this massive bailout and the jettisoning of a great deal of debt, GM became majority owned by the United States’ treasury, while Chrysler became majority owned by the United Auto Workers Union and Fiat. Overall, this was a tremendous low point in the United States Automotive industry.

Cash for Clunkers

Officially known as the Car Allowance Rebate System, Cash for Clunkers started on July 1, 2009 and set aside 3 billion dollars for American car buyers. Initially proposed and greenlit by the Bush administration, the goal of this legislation was two fold; to give a major shot in the arm to the economy by getting people to spend money on new cars, and to take older, less efficient models off the road. This is a classic example of pump priming economics. It directly helps people who are making money, which is the exact opposite of the bailout of GM.

The basic premise was, you could go into a dealer with any vehicle as long as it was less than 25 years old and get 3500 to 4500 dollars for that car when you bought or took a 5 year lease on a new vehicle that met certain efficiency standards. The dealer would then run the engine of the old car with a solution of Sodium Silicate that would render the engine inoperable, and then take the car to be recycled.

In theory, this is a pretty excellent idea. It’s 2009, the economy is still reeling. The only way to get it going again is to make the most powerful economic engine in the world, the American Consumer, fire on all cylinders. However, economic theory and reality are often two different things, as we are going to explore now.

This program was not unique, as several countries did the same thing. However, in countries such as Japan they limited rebates to domestic made vehicles. The United States did not do this, and in 690,114 dealer transactions were submitted, requesting a total of $2.877 billion in rebates. At the end of the program Toyota accounted for 19.4% of sales, followed by General Motors with 17.6%, Ford with 14.4%, Honda with 13.0%, and Nissan with 8.7%. However, this is the nature of being the world’s largest car market. When we fall, we need to pick the entire market up, and not just our domestic car makers. Also, these cars were bought, serviced, and in many cases built in the United States. While the money goes overseas for the initial sale of the car, keeping that car on the road, and processing the payments though the dealer is handled by the domestic economy.

The impact was also felt on secondary car markets. With so many used cars being destroyed, the law of supply and demand kicked in and raised the price of the cars remaining in the secondary market that is so important to lower and middle income families in America. Jacksonville State University economist and Ludwig von Mises Institute scholar Christopher Westley called CARS the “I Hate the Poor Act of 2009”. However, the used car market is an endless supply, with all of the cars still on the road from all of the years prior making up that market. Every car that is not a new car is a part of the used car market. Moreover, these recently deceased vehicles ended up getting recycled, with many parts going to junkyards and being put back onto other used cars.

There is one other major factor: the cars that were destroyed through Cash for Clunkers. When this program was going on, Jalopnik was kept an eye on what was being turned in and came to the conclusion the program was more wasteful than positive to the overall economy. We are slightly inclined to add the words “trigger warning” to that link. Some of the vehicles dealers destroyed — for a few grand off of cars made out of plastic — will hurt your feelings.

 

So, much like every other piece of recent legislation, no one can agree on whether or not it was a good thing. While it did get many rusty, unsafe, and inefficient cars off of American roads, it opened the door to more people buying smaller, less expensive Japanese and Korean-made vehicles, rather than the large and expensive American SUV’s that had dominated the market through the early 2000s. However, because of this it was a major shot in the arms to car makers all over the world, as sales spiked and they had to make more cars. Many automobile dealers made a significant rebound because of this legislation, and were also streamlined as inconsistent brands such as Saturn, Pontiac, Mercury, and Hummer (link to Used Car review) were discontinued.

Other Legislation

The big money Cash for Clunkers wasn’t the only piece of legislation that came down the pipeline between 2008 and 2016. We also were told a lot about making cars safer by adding backup camera systems and accurate diagnostics in case of crashes. Lawmakers also ventured into the murky world of legislating engine computers — and that got ugly in a hurry.

Black Box Laws

This probably isn’t the worst thing. In all seriousness, Event Data Recorders have been a good thing across the board, as people need to find out why accidents happen. It works great in planes, and now on a more personal level in cars. This is a major asset for determining fault in an accident which is useful for the police, insurance companies, and judges. So not that interesting, but now it’s mandatory.

Back Up Cameras

After 2018 all new cars sold in the United States are mandated to have backup cameras. The real kicker here though, is manufacturers are selling this as an awesome piece of optional equipment that makes their cars better than competitors. While it was an optional feature on cars from the early 2000s, the market has yet to realize the changing nature of this equipment. In addition, there are also companies propping up to have them as secondary equipment, such as Pearl, which takes the place of the license plate holder and connects to your phone via an app. Pearl systems are solar powered, which is kind of awesome.

Digital Millennium Copyright Act

This is hands down the most fiercely fought piece of legislation in this article. Fought tooth and nail by automotive enthusiasts, the DMCA protects creative content and what the public can do with it. What does this mean? Well long story short, the government really doesn’t want you messing with the code in your engine computer for a wide variety of reasons, and were going to go into them now.

First of all, this law is not an Obama administration original. It came about in 1998, but only became a big deal to the automotive industry as computer tuning moved to the forefront.

Where this intersects with the automotive industry is in engine management software. There are many forms of software within a car that are considered to be creative content, which must be protected under the DMCA. This is where engine tunes, reprogramming, and all sorts of other automotive enthusiasts tricks happen (typically to make cars go faster, but tunes can do other things like engine efficiency). This was then blown somewhat out of proportion by elements of the media as an end to all automotive tuning. We read the law and it is pretty vague in regards to a lot of things, but here’s the bottom line: the government doesn’t want people deleting lines of code that can turn airbags off. There are a lot of other examples on something that has a lot of kinetic energy that you want everything to be working properly.

Overall, people are still going to do it, and the fact that an almost 20 year old law only became a big deal under the Obama Administration is kind of strange. However, this law came into this write up not because of government action, but rather by the public’s ability to make laws suddenly become extremely relevant. Where do we stand on this? Well, we’re in an interesting spot. We make code that helps people for a living, but we also want people to be safe in their cars. Overall though, we love messing with cars, and the divisions about the law persist in the office as well as in the market and among enthusiasts.

What Else Happened?

So, as you can see, this has been far from calm waters for the American Automotive Industry, American auto enthusiasts, and everyday consumers. So what else happened:

• Jaguar and Land Rover were sold several times, and ended up being taken over by Tata Motors.
• Ram broke off from Dodge, and then both were acquired by Fiat.
• GM dropped Hummer, Saab, Pontiac, and Saturn.
• Ford dropped Mercury
• American Muscle Cars learned how to go around corners
• The hot hatchback (link to Fiesta car review) market, and in fact the entire small car market has never, ever been better
• The world go a new Fiat 500
• We saw the rebirth of the NSX
• We’re getting a new Ford Ranger and Ford Bronco by 2020

So in reality, it could have been a lot worse. From where were sitting, we are optimistic about the next 4 years for the automotive industry as both Ford and GM have announced significant investment in factories in Detroit. We know that with the automation of the workforce that they are never going to employ as many people as they did in the late 60’s, but every little bit helps.

We also know of a little app company in Rochester, NY called Surfwrench that is helping people get their cars fixed. We take a lot of pride knowing that we are creating the future of automotive repair, and we look forward to streamlining the repair process and helping both technicians make more money, and customers get back on the road faster at a tremendous savings. Because being able to post your problem and get a solution by a trusted, reviewed, insured independent technician or shop is a lot better than getting ripped off.

Now, we want to hear from you: what were your favorite and least favorite parts of the automotive industry in the past 8 years? What’s your opinion on some of the major legislation of the automotive industry under Obama? Let us know on Facebook, Twitter, and Instagram.