Artificially Sustaining Outdated Industrial Models Is Foolish

More than fifty percent of the vehicle sales in the United States were temporary. How did it happen and why is it over?

    Nikolai Kondratieff, a Soviet economist, developed a theory that all industries follow a 50- to 60-year industrial cycle. At the end of this time period, the industry reaches full maturity and new research and technologies force a shift. Every major industry has followed the Kondratieff cycle, but occasionally one prolongs their existence longer than evolution dictates is prudent. When that happens, the industry becomes inefficient and the corrections are more painful. For the majority of industries this shift transpired in the 1990’s. Almost half (46 percent) of the Fortune 50 companies in 1990 are no longer listed even in the Fortune 100 by 2005, if they exist at all.  By 2008, 50 percent of the former top ten required over $300 billion in taxpayer relief to stay (artificially) afloat. The automotive industry is a classic example. Automotive sales exceeding 15 million vehicles a year was artificially sustained and will not return for more than a decade for three reasons. First, the funding for these vehicles was unsustainable as it came off the back of a second mortgage from a house that was overinflated. Secondly, the median income of just over $50,000 (and dropping) cannot sustain a family of four, let alone the median cost of a new car. Finally, the average life of a vehicle and the average number of households dictate that the more likely historical sales of vehicles is between 8 and 10 million per year in America.