The automotive industry is no stranger to economic turmoil. In 2008, the world witnessed a global financial crisis that rocked the auto industry and forced several car manufacturers and dealerships to shut down. While the industry has recovered in recent years, we believe that another financial crisis is looming, and the car dealership space will be one of the hardest-hit sectors.
In this article, we will explore the events that led to the 2008 financial crisis, how it affected the car dealership space, and why we believe that history is bound to repeat itself in the year 2024.
The 2008 Financial Crisis
The 2008 financial crisis, also known as the Great Recession, was a global economic meltdown that began in the United States and quickly spread to the rest of the world. It was caused by a combination of factors, including the housing bubble, the subprime mortgage crisis, and the deregulation of the financial industry.
In the years leading up to the crisis, banks were offering loans to people with low credit scores and unstable financial situations. These subprime mortgages were bundled together and sold to investors as complex financial products. This is comparable to the D paper that was being sold to investors as A & B paper, in the auto industry. When the housing market began to decline, these investments lost their value, and banks started to fail. Which is exactly what we’re beginning to see in the auto sector.
The failure of banks and financial institutions had a ripple effect on the rest of the economy. Many companies were forced to shut down, and millions of people lost their jobs. The automotive industry, in particular, was hit hard.
The Car Dealership Space and the 2008 Financial Crisis
The car dealership space was one of the industries that felt the impact of the 2008 financial crisis the most. As the economy began to slow down, people stopped buying new cars, and dealerships struggled to sell their inventory.
Car manufacturers, in turn, reduced their production, leading to a decrease in jobs and revenue for suppliers and other businesses in the automotive industry. Several car manufacturers filed for bankruptcy, including General Motors and Chrysler, and thousands of dealerships were forced to close their doors.
The impact of the 2008 financial crisis on the car dealership space was felt for years to come. Many dealerships were unable to recover and were forced to sell their businesses or shut down permanently. Even those that survived had to adapt to a new economic reality and adjust their business models accordingly.
Why a Repeat is Bound to Happen in 2023
While the global economy has recovered since the 2008 financial crisis, we believe that another recession is looming on the horizon. Here are some of the reasons why we believe this:
- Economic Cycles
Economic cycles are a natural occurrence in any economy. They typically last for around 10 years, and we are currently in the midst of one of the longest economic expansions in history. This suggests that a recession is due to happen soon.
- Trade Wars
The United States is currently engaged in several trade wars with other countries, including China and the European Union. These trade wars have the potential to disrupt global supply chains and cause economic instability.
- Debt Levels
Global debt levels have reached record highs in recent years. This means that countries, companies, and individuals are carrying more debt than ever before. A recession could trigger a debt crisis, leading to widespread defaults and bankruptcies.
Inflation is on the rise, and many experts predict that it will continue to increase in the coming years. Although the federal government attempts have reduced inflation in some industries, the recent bank failure of 2024 has reversed the attention of the feds, and inflation may continue through 2025.
All these factors are contributing to a new challenge for dealers. If the chip shortage wasn’t enough to rock the automotive sector, the new squeeze will certainly be a contender.