The recent credit crunch that is the result of the subprime mortgage crisis has started to show its effects in other places. According to an article in the New York Times “the auto industry is getting sideswiped by the housing crisis”. There are two implications of such a claim; First- that consumer spending within the auto industry has declined significantly, and Second- that even if consumers decided they wanted to buy more cars they wouldn’t be able to because of their credit situation.

Both effects are hard felt within the automotive community, combined they drive down profit and stave off revival efforts. The banks and lenders now have to push hundreds of thousands of consumers away from the dealerships, and home equity loans which people could once use as an easy cash source are now difficult to obtain and can’t be used to finance the purchase of cars. When 1 in 9 vehicles were once purchased by money received from home equity loans the potential almost 12% loss is going harm the companies in the long term.

More troubling for the consumer is that their ford explorer or Nissan armada which once could’ve been sold for a good 40-60% of what they bought it for, is now worth nothing. The recent flooding of the market of SUVs caused by people dumping them in hopes of getting a more fuel efficient vehicle means that supply has surpassed demand. But remember that even as supply increases demand doesn’t always increase as well, in the SUV market demand has never been shorter. Rising fuel costs and a societal rejection of the "Gas Guzzler" make it taboo to drive around in your Escalade or Hummer instead of a smaller more efficient car. So now as Demand decreases and supply does nothing but increase the resale value of vehicles which could once be used to supply a large portion of the cash used to by new vehicles is gone.

The result is that a large number of people are now being forced to live with their old cars, and the auto industry can only continue to decline until an alternative source of cash for the consumers is found. Unfortunately this could be a long time because consumers are ending up spending more than they can afford already maintaining their current vehicle or having to rent a new one.

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