Effects of Recession on the Car Insurance Industry in the US

The median US income in 2007 was $50,233 dollars. But now, not only has this figure come down considerably, but the value of the US dollar itself has reduced in comparison with Euro and many other currencies. Around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. On January 26, 2009 a day dubbed “Bloody Monday” by the media, 71,400 jobs were lost in the US alone.

Reason: The global economic crisis. It struck the world in the later half of 2007, and now poses an alarming threat to all business sectors throughout the economy. In December 2008, the National Bureau of Economic research (NBER) declared that the United States had been in recession since December 2007. The global financial crisis, brewing for a while, really started to show its effects in the middle of 2007 and into 2008.

According to National Bureau of Economic research, a recession is “a significant decline in economic activity spread across the economy, lasting more than a few months”. Going by this definition, recession in the United States is not a forecast anymore, but an indisputable reality. Retail sales are down, stocks are falling, loans are hard to get, consumer spending has plummeted sharply, there is a credit crunch and layoffs on auto coverage are increasing by the day. Several economists are expressing their concern that there is no end in sight for the downturn. The effect that recession has on every aspect of the economy is undeniable. The world’s greatest super power is also now a victim of this

The automobile industry in the US, for example, is feeling immense pressure. Some of the largest companies in the world, like General Motors (GM) are facing huge problems and are asking the government for some kind of bailout or assistance. After bailing out the banks with enormous amounts of money, the US is now wondering what will happen if all the industries hitting bankruptcy start coming to the government for aid.

Analysts say that the United States has entered what they anticipate will be the worst recession in more than a quarter of a century, marking the steepest decline since the recession in1981-82.

In October and November 2008, every industry was affected – even the newspaper industry. Major industries in the US such as the automotive, banking and insurance industries are falling prey to the economic crisis. In 2008, homebuilding was named the most troubled industry, but it has fallen to third spot for the year 2009. Studies conducted recently by bankruptcy and restructuring professionals in the US shows the auto industry to be the one hardest hit by the economic downturn. It is definitely at a downturn, with resulting in the US car CEOs taking a $15 billion loan from the US government.