Auto industry fragility exposed by volume model
The guest argued that building a top-down industry volume model revealed the US auto industry was highly fragile and overselling cars prior to the 2008 financial crisis.
The argument
The guest built a model to determine how many cars should be sold in the US, realizing the industry was ossified in its thinking. This top-down work, combined with bottoms-up cost analysis, showed that companies like General Motors could not make money if sales fell below 15.5 million units, exposing extreme vulnerability before the downturn.
The thesis, stress-tested
✓ What validates it
- ✓US auto sales falling below 15.5 million units
▸ Risks discussed
- ▸Macroeconomic cycles can shift rapidly
- ▸Ossified industry assumptions can persist longer than expected
Hear it yourself
"And that allowed us to then do bottoms up cost work on auto companies and realize they were very, very exposed or fragile to any change in the environment. So we weren't predicting a financial crisis."
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