Every time bad news breaks for U.S. automakers, journalists and other observers offer one of two main explanations. One is that Detroit doesn’t make very good cars, or at least doesn’t make them efficiently enough. The other is that American automakers are so burdened by the retiree health care and pension commitments that they made when they were bigger, more prosperous companies that they barely have time to think about making good cars.
There’s truth in both of those (personally, I lean slightly towards the latter explanation). But over the past 20 years the short-to-medium-term fortunes of the U.S. carmakers seem to be dependent mainly on one thing: The price of gasoline. The impressive return to profitability of Detroit’s Big Three in the 1990s was in retrospect almost entirely attributable to the global oil glut that sent prices at the pump down and kept them there. Detroit makes its money on SUVs and pickup trucks, not on compact cars. Those don’t sell well when gas costs a lot.
This is an obvious enough point, I guess, but I still thought it would be cool to plot GM’s stock against the price of gas to see if the chart backed up the theory. It does. I used the average price at the pump for unleaded gas, as reported by the Energy Information Administration, and indexed both it and GM’s stock price to equal 100 as of January 1995. (I thought about sending the chart to the time.com people and seeing if they could make it pretty, but decided that wouldn’t be very bloggy of me.)
Gas prices have dropped in the past six months, and GM’s stock price has risen. But a return to 1990s conditions really doesn’t seem to be in the cards. Which is why I think we might keep reading scary headlines about the U.S. automakers for a while yet.