Canada's Debate

When exactly did the current economic “situation” stop being a crisis and develop into a full-blown parody? Apparently the titular “head” of Ford Motor Company of Canada thinks that the solution to the stagnating auto-industry is to simply make it easier to buy cars.

The best way to rescue Canada’s battered auto sector is not through direct bail outs, but by giving consumers an incentive to buy new cars, the head of Ford Motor Co. in Canada says.

Everything about this article makes me angry, especially the fact that a supposed expert actually uttered the words “more safer,” in what is supposed to be an intelligent plea for aid. Now, lets consider this particular idea. If we give people a cash incentive to buy new cars (we’re told), people will junk their old ones, get new ones, and we’ll all be happy as clams… except this ignores the underlying problems facing the auto industry. Car ownership rates skyrocketed in the last 20 years (over 2 per household in Canada now) and stabilized in recent years, and they last twice as long as they used to.

What conclusions can we draw from these facts? That the demand for cars is declining. Now, what do we know about car loans? For starters, they are money pits. The average loan in the United States is for 98% of the car’s total value (couldn’t find Canadian stats, sorry). We’ve all learned the hard way that a mortgage with less than a 5-10% downpayment is a really bad idea; so who in their right mind would suggest that a loan for an asset that automatically declines in value is makes a lick of sense during a time of economic contraction? Easy-to-acquire credit courtesy of the global banking industry’s phantasmagorical derivatives market has fueled consumption of just about everything (including cars) beyond the means of the global economy to pay for it. The money is not there.

The majority of cars are purchased with loans. People cannot afford the amount of debt they have, and it is being suggested that the government acquire more debt, to allow Canadians to acquire more debt of their own, in order to artificially inflate a market which is in a period of inevitable contraction.

Normally I wouldn’t be worried that an idea this stupid would be considered seriously, but Stephen Harper is still in power, and still desperate.