Chrome and optimism

The big event of this past weekend around our way was the annual display of classic American cars at Knebworth House. Seeing the arrayed lines of heavy metal was a reminder of better times. Inefficient, oversized and unreliable they may have been, but the American cars of the fast-retreating past were symbols of America's optimism and can-do attitude. (Yes, even the '58 Edsel in the picture!)

It's all quite a contrast with the dispiriting spectacle of the past few weeks, with the President and the main parties in Congress at each other's throats in a debate that was only superficially about the conceptually ludicrous debt limit. In reality, it was about different visions of how to prepare America for a world in which it will no longer be the leading economy, a world in which dealing with a mountain of debt is made ever more difficult by intractably slow growth in domestic output.

This was all forcefully brought home by a discussion on CNBC's "Squawk Box" today. Despite relief over the apparent debt deal, the resident panellists and their guests were competing with each other to see who could be the gloomiest about America's future. The main guest was Pimco's Mohamed el-Erian, who pointed out that his company had described the factors that would lead to a decade or more of slow growth as long ago as 2009. Boiled down to its most basic, the need to unwind a decade of progressive over-leveraging would outweigh any attempts at stimulus. The "noughties" in effect used debt to borrow growth from the future. In the payback decade ahead, Pimco believes that the trend rate of growth for the US economy will be no more than 2% a year.

The conundrum this sort of outlook creates is that it becomes extremely difficult to achieve any real headway against deficit and debts when the underlying economy is growing so sluggishly -- a lesson which the UK economy is, unfortunately, relearning right now.

We can loop back to where we started -- the US car industry -- to see just what this means. The "big three" have rallied remarkably well in the past couple of years, thanks to a variety of factors -- good management (Ford), public money (GM) and, of all things, Fiat (Chrysler). However, their recovery has now stalled in the face of rising unemployment and falling confidence. This Bloomberg story suggests that projected sales for the 2012 model year may have to be scaled back by as many as 1.5 million units, or more than 10%. That may well be just the start of another dark time for the industry.

One of the striking things about any US vintage car show is the number of vehicle marques that vanished long ago: Hupmobile in the distant past, the likes of Desoto, Studebaker and AMC rather more recently. Today's big three have drastically pruned their brand offerings to meet the demands of more straitened times, with marques like Pontiac and Mercury falling by the wayside in the last year or two. Even if the companies themselves survive, however, it seems unlikely that when today's vehicles are put on display at the Knebworth show in 2061, they will engender the same warm feeling of nostalgia as their predecessors did.