Continued: Has America given up on new cars?

DETROIT - For all the drastic cuts and financial overhauls that are meant to secure a future for General Motors and Chrysler, their prospects in coming years will be determined more by the answer to a simple question: Can American drivers live without that new-car smell?

In recent years Americans appeared to be hooked on it and took advantage of home equity loans, easy credit and cheap short-term lease deals to send new-car sales to levels of more than 17 million a year.

Now the market has collapsed by 46 percent to below 10 million, as people are making do with the cars they have, leaving the industry to debate -- and worry -- about what the new normal will be once the recession ends.

Some say that the downturn is temporary and that sales will spring back in a few years. Others believe Americans will rethink whether they need so many cars, particularly new ones.

The answer will be important to the Obama administration as it prepares to put GM into bankruptcy on Monday. After the company emerges from bankruptcy, the federal government will own about 70 percent of it, in return for $50 billion in taxpayer aid. GM has already received about $20 billion in federal help.

The Treasury Department's advisers, who initially expected auto sales to pick up late next year, now foresee no jump in demand this year or in 2010. And even five years out, they expect annual sales to be about 15 million, still well below the peaks of this decade.

Making predictions is tricky in this economy. The market has grown more bleak, and worst-case scenarios drafted only months ago are becoming reality.

If sales do not recover, the Treasury will have to provide more financial support for GM and Chrysler, which has received about $10 billion in federal aid, before they can stand on their own and the government can divest its shares.

Cautionary consumers

People such as Kate M. Emminger do not offer the carmakers much hope. Emminger sold her 2006 Toyota Corolla last April because she decided she could not afford her $250 monthly payment, even though she earns about $60,000 a year as a university events planner.

"It just became too expensive to have a car," Emminger said. Now, she volunteers at City CarShare, a nonprofit organization in San Francisco, and earns the use of its vehicles, which normally rent to members for $5 an hour plus 40 cents a mile. Otherwise, she takes public transit.

But plenty of people in Detroit argue that once the recession is over, buyers will rush back to dealer showrooms.

If sales do pick up, carmakers eventually could be more profitable than they have ever been because of all the costs they have shed, said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich.

Others, however, point to shifts suggesting that Americans' desire -- and need -- for new cars may be cooling.

Baby boomers, the biggest group in the car market, are beginning to enter retirement, a stage of life when people typically buy fewer cars. Home values are down sharply, making consumers feel less wealthy, and also cutting off a handy source of money from home-equity loans for new cars.

"We sold to people who purchased cars by refinancing their houses," said Wilbur Ross, the billionaire financier who has invested in steel mills and auto parts companies.

Looking at alternatives

The housing and financial crisis has taken its toll on reliable customer Frank Powell, a school administrator in the East Palo Alto School District in California. He moved out of the house he had lived in since 1983 and started renting a few months ago because of his debt burden, which includes auto loans.

"I used to buy cars all the time and took out loans to pay them off," he said. "As soon as I paid part of one off I'd get another. I'd buy one for my kids, my wife, myself. I can't do that anymore"

He now has a Cadillac Escalade sport-utility vehicle, but he is thinking about downsizing and driving something much smaller -- and for longer.

"Something had to change," he added. "You just can't keep going with that many cars."

Lifestyles have changed, too. As many people move back to cities from suburbs, they are swapping three-car garages for a single parking space. Public transit use is up.

"Too many people are looking at alternatives," said Scott Griffith, chief executive of Zipcar, the national car-sharing company that has more than 300,000 members, up from about 200,000 a year ago. Griffith estimates that for every three members, a new car probably goes unsold.

"They're much smarter about spending money and looking for ways that don't even involve cars any more," he added.