Shifts in behavior

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So much of this is outside their control. You can restructure, restructure, restructure, but if auto sales don't rebound, then unless you have zero debt, they’re not going to survive.” –Shelly Lombard, auto industry analyst for debt research firm Gimme Credit

Being witness to the agonies of General Motors and Chrysler is heart wrenching right now. These are icons of America’s not-so-distant past, you know – manufacturers that used to produce vehicles envied the world over.

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They still build better light trucks (in my estimation at least) than their European and Asian rivals – GM’s Sierra and Silverado pickups, along with Dodge’s Ram line and Ford Motor Co.’s venerable F-150 are still the models to beat in this segment. But as we all know, those are precisely the wrong models for a nation trying to get its energy policy house in order – as far as vehicles the average motorist should drive for commuting to work, etc., to get the best fuel economy.

Even if GM and Chrysler do survive their respective fiscal deadlines (GM is trying to restructure $44 billion in debt by June 1, while Chrysler has $7 billion to rework by this Friday) the largest challenge they – and the entire automotive industry for that matter – must hurdle is, at least for the moment, almost insurmountable: customers must buy cars and light trucks; a LOT of them. Yet people aren’t. So no matter what they do in the short term in terms of debt, shutting down factories and killing off extraneous brands, without sales, GM and Chrysler have no rungs on the ladder to climb out of the hole they’re in.

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3M Car Care’s second annual Elbow Grease Economics report, released this week, starkly illustrates this basic conundrum. The study of 1,835 U.S. car owners by Harris Interactive found that the majority (55%) are planning on keeping their cars longer and have no plans to trade in or sell their current car at this time, with 84% saying they are committed to doing the maintenance needed to keep them running.

Nearly one-fifth (19%) of car owners used to think they could just go buy a new car if necessary, but now they say they know they can’t afford it. And this is even higher – 25% – among Baby Boomers ages 45 to 54, reflecting their concerns over pending retirement and tight household budgets.

At the same time, there is pent-up demand for new cars, as more than two-fifths (42%) of those surveyed in #M Car Care’s report are considering trading or selling their current car for another model but haven’t done so yet. The reasons are varied: the largest group (at 21%) trust their current car; 19% aren’t confident in the economy or do not want to take out another loan; 10% aren’t sure what will happen with the "Big Three" U.S. automakers; 5% cannot get an auto loan; and 4% say their loan payout is larger than their car’s value – but for men and women ages 35 to 44, this increases to 8 % and 14% respectively.

Vehicle maintenance is more of a priority than ever before for car owners, particularly as the average age of American vehicles reaches nine years old, 3M Car Care reported. Yet here again, U.S. car owners are trying to cut the costs of vehicle ownership – by driving less and by shifting to do-it-yourself (DIY) maintenance more frequently.

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One-quarter (25%) said they pay more attention to the maintenance needs of their car now, compared to two years ago, the study noted, with 27% performing car maintenance themselves or having friends or family members do it. Some 6% of these respondents have just started doing their car maintenance themselves after having it done professionally in the past – a statistic that increases to 9% for car owners ages 18 to 25.

3M Car Care’s research also found 29% of car owners are doing small maintenance tasks themselves, such as oil changes and light bulb replacements. That rate is even higher for owners ages 18 to 34 with 43% of men and 37% of women tackling minor DIY tasks, with 43% of households making less than $35,000 annually jumping on the DIY bandwagon.

Even driving habits have changed significantly – and these may be more permanent shifts in behavior than we think. More than half (56%) of car owners survey in the 3M Car Care’s study are driving differently today than they did two years ago, with 40% driving less to save on gas costs and vehicle wear-and-tear. For those making less than $35,000 annually, it increases to 52%. A further 20% are driving less aggressively to protect the engine, with 5% of all respondents carpooling whenever they can – a rate that triples to 15% among those ages 18 to 25.

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These reasons are why the annual global sales rate for cars and light trucks plummeted from some 16 million units down to 9.2 million in the space of one year – and may remain there for some time.

It’s why GM is eliminating 21,000 more jobs, closing down 13 factories, and phasing out the venerable Pontiac brand (a top seller, right behind Cadillac and Chevrolet) in 2010 – less than a year away.

It’s why GM eventually expects to have only 38,000 union workers and 34 factories in the U.S., compared with 395,000 workers in more than 150 plants back in 1970.

It’s why the U.S. government is going to be – at least temporarily – the majority shareholder in both GM and Chrysler as the two automakers try to stave off bankruptcy.

It’s why, at the end of the day, this all may be for naught as people simply won’t buy new cars, unable to risk their precious savings – battered by a housing meltdown, fiscal shenanigans by Wall Street, and rising unemployment.

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