GM, unplanned investment, and what about the environment?

Unplanned investment, as opposed to planned investment (yes, economists’ obsession with the incorrect use of ‘un’ bites us, once again). This is the measure by which we can determine, after the fact, how the/an economy is doing, macroeconomically.

First, consider the Business Cycle:

Business cycle

This is the cyclical pattern of Aggregate Expenditure – as ooposed to a nice, straight, increasing line (i.e. no business cycle, just steadily increasing wealth). The oscillations come with non-stationary investment expenditure (amongst other factors, but we’re interested, here, in investment).

Now then: equilibrium. Macroeconomic equilibrium occurs when Aggregate Expenditure, given by

Aggregate Expenditure = Consumption + Planned Investment + Government Purchases + Net Exports

At equilibrium this equals GDP. When Aggregate Expenditure is less than GDP, people are buying less than firms are producing: this is called an unplanned increase in inventories, or unplanned investment:

AE and GDP

macro pic 2

So to the news!

The way that auto executives here have been talking, 2008 will be a bad year to sell cars and trucks in the United States. Every time one company predicts how the industry will fare, another seems to come up with an even more dismal number.

Most forecasts now come in ranging from 15.5 to 15.9 million vehicles, an estimate that would mark the worst year for sales in the United States since at least 1998.

Meanwhile, G. M., which had a five-month supply of unsold pickup trucks at the end of November, said it is cutting first-quarter production by 11 percent. Ford has announced a 7.4 percent cut in the same period.

The combined market share of the three Detroit companies fell below 50 percent during two months of 2007, July and November, something that had never happened before. Their production cuts mean the chances of that happening in 2008 are even greater.

Remember that line about “as goes GM”?

Auto makers investment

(click for larger version)

Now, the environmental aspect:

… several big foreign carmakers, including Toyota and Honda of Japan, are projecting that their sales in the United States will increase in the coming year in spite of the housing slump, high gas prices and lackluster consumer confidence.

“I think we’re going to have a great year,” said Terry Baier, general manager of the Oakbrook Toyota dealership in Westmont, Ill. “I don’t think the market is going to hurt us like it’s going to hurt the domestics. Right now I have a showroom full of customers, and you don’t see that at a Chevy store. We’re looking for a phenomenal year.”

So: good for foreign auto-makers (since they make cars with actual standards of fuel efficiency, and that aren’t moronically over-sized). Also good for pedestrians: reasonably-sized cars means better fields of vision for us, crossing roads. It will be interesting to see the trade-off between this and the exchange rate – although the appreciation in petrol prices alone, not to mention declining disposable incomes, will be more than enough to offset any such advantage.

Bad for the environment. This gets back to my dislike for the Prius: if/as people ditch their idiotic American monster cars (since this argument presupposes that we’ll end up with more cars than otherwise would have been the case), those cars do not simply disappear. They still exist. This still just means more new cars, more old cars in landfills, etc.

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