Tuesday, May 13, 2008

The Detroit Auto Industry Might Be In For Yet Another Hit

Detroit auto plant shutdownAt this point probably everyone is aware that Detroit’s auto industry has been struggling, and as the auto industry goes, so goes Detroit’s economy. During the past few years, consumers have left the American car manufacturers for their smaller and more fuel efficient foreign counterparts. Recently the American car manufacturers have begun to embrace the consumer’s desire for fuel efficiency, but they are still behind the competition, and now it appears that the entire auto industry might be in for a new shock.

As the price of oil continues to skyrocket, many consumers aren’t satisfied, or will eventually become unsatisfied, with the current level of fuel efficiency and are simply deciding to pass on the new car altogether in favor of public transportation. Many people have already been priced out of buying a new car with the added cost of fuel, but if $200 oil becomes a reality, as Goldman predicts, then you can bet the number of people being forced to public transportation will increase. This obviously is bad news for the Detroit auto industry.

I would love to see more people take public transportation. It is much more environmentally friendly and cost effective, yet there is a major problem: Many major cities in the U.S. have poor public transportation systems, and at their current levels, they are just not realistic for many professionals. I would love to take public transportation into work each day, but if I took the bus to work, it would take me about an hour and 15 minutes instead of the 10 to 15 minutes it takes me now. When you factor in the trip there and back I would have lost 2 hours of my day--not something that I’m willing to give up. It seems rather silly to me that a 7-mile journey would require three bus transfers and take more than an hour. Because of these many inefficiencies, and the increasing demand for public transportation, I see some changes in the future--and, of course, an investment opportunity.

First off, as more patrons are forced to public transportation, you can be sure that the government will be hearing their outcries about the inefficiency. As a result, I foresee an increase in public transportation investments, and possibly even upgrades. I love the light rail system they have going in Portland, and although I probably shouldn’t even mention the word "monorail" in Seattle (we’ve had quite the costly experience in the past with this one), I’m starting to think it’s not such a bad idea--assuming we actually do it right this time.

Lastly, I see access to public transportation becoming an important part of a person’s home buying decision. As you can probably tell, when I chose my home I wanted something close to work so I didn’t have to commute far, but I didn’t take into account whether it would work for public transportation. Those properties that are close to main transit centers which allow homeowners to easily go wherever they need to go might see an increase in demand. If I was planning to use public transportation from the start I certainly would have factored it into my housing decision. So while the Detroit auto industry may be in for another hit, public transportation companies and properties that are public transportation friendly should do well.

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