Wednesday, July 12, 2017

Van Gogh vs Van Go?

There’s something strange going on. When I was a kid, we knew every make and model of every car that zoomed around us. Teenage boys couldn’t wait to have their own, many able to upgrade and repair the older models they purchased with money from summer jobs or got mom and dad to subsidize. With working folks buying new cars every two years, there were lots of leftover choices for the kid-aficionados… fewer a couple of years later when Americans bought (when leasing became normal) or leased a new car every four years. Kids today, except in rural communities, don’t seem to be interested in cars so much these days (more later). Smart phones, apps, and cutting-edge content… sure. Cars? Not so much. It more an older adult thang… fading fast. A little walk through post-War American automotive history?

Most Americans probably are not aware that post-WWII Ford Motors “whiz-kid,” Robert McNamara (he became John F. Kennedy’s Defense Secretary in 1960), designed “planned obsolescence” into his cars – a practice picked up by the other U.S. automakers – cutting production costs and increasing the need for consumers to “buy-up” more frequently. Fit and finish? Forgetaboutit! Foreign car manufacturers weren’t really a big factor until the late 1960s, when their better quality vehicles caught up to that “planned obsolescence.” But car-buying was ingrained in the American psyche.
That automotive feeding frenzy drove union compensation to the max. Plush benefits, high pay and Cadillac healthcare plans. Detroit flourished. Two car garages were everywhere. Three car plus garages were sprouting up as well. Cars had cachet somewhere between toys, plush, status symbols… and eventually the ubiquitous “mommy-mobile.” Sports cars, sedans and coupes gave way to station wagons and pick-ups… then SUVs. Mommy-mobiles segued into mini-vans. We got used to the foreign competition. There was enough for everyone… for a while.
Starting somewhere in the early 1990s, Americans began a trend that has continued into this very day: an unbroken, year-to-year decline in net “real” discretionary spending power… interrupted by the worse economic downturn in the American economy since the Great Depression (2007-2010). Americans were value conscious, and when gas prices were high, seriously focused on fuel-efficiency. When gas prices plunged, SUVs took center stage again. But Americans now were waiting more than a decade to buy a replacement for their last “new car.” Detroit was teetering. Guns were up; jobs were down.
That nasty recession was the straw that broke Detroit’s back, sending Chrysler and GM into bankruptcy in 2009, salvaged only with a massive bailout by the federal government. Ford was able to skip the Chapter 11 filing and renegotiate its union agreements, but it was clear that those collective bargaining agreements were too rich for a modern era. Detroit collapsed under the strain, filing municipal bankruptcy in 2013. The big-three automakers struggled back, and for a while business improved significantly.
Today, the average U.S. buyer gets a new vehicle every 11.4 years. I know plenty of college-age kids here in the car-driving capital of America, Los Angeles, who don’t have driver’s licenses and have no plans to get them. It’s a tough job market out there, student loans have reached staggering levels, lots of kids live with their parents well into their 20s (housing has skyrocketed in major American cities), and cars, even used cars, are expensive and unnecessary luxuries that cost a fortune to park, insure, fuel and maintain.
Mass transit, even here, is accessible… and then there are the vastly cheaper-than-taxis, Uber, Lyft and their ilk. The future seems heading towards driverless cars anyway. Cars aren’t so cool anymore. Young college grads prefer to live closer to where the jobs are as well. Real estate developers are worrying about what they will eventually do with large commercial parking structures when folks simply hail those driverless cars instead of buying their own. Petroleum extracting nations are equally worried that demand for their product, which has declined of late, will drop a lot further.
“Unemployment is down [not exactly if you drill down into the alternative unemployment numbers], consumer confidence is up, and gas prices and interest rates are still low… Even so, U.S. auto sales fell 3% last month [June]… It was the sixth straight monthly decline as sales dropped off last year's record pace. For the first six months, car and truck sales fell 2.1%, the first such decrease since the financial crisis in 2009.
“But auto executives and industry analysts say it's no cause for panic. Sales are still strong and aren't expected to plunge anytime soon. Plus, buyers are still loading out trucks and SUVs with high-priced options, and that's likely to boost earnings, at least in Detroit.” Los Angeles Times, July 5th. Sales “not expected to plunge” when sales are down for six consecutive months? I would suggest that if you are in car manufacturing or sales, if you are not panicking, I would at least suggest that you might plan to panic in the near-term.
It gets worse if the dollar stays strong and the euro and the pound sterling fall, dropping the price of those imports. But The Donald could charge higher tariffs to try and force us to buy American… until the retaliatory tariffs charged on our exports triggers another recession. Whether we have to worry now or a few years down the line, the future for traditional car manufacturers is not particularly bright. And in the near term, what people are buying (and the deals we are making to buy or lease personal vehicles), with gas prices destined to stay low even as engine efficiency is increasing, reflect some interesting trends.
“U.S. buyers continued a trend they've been following for years, purchasing SUVs and trucks and shunning cars… Car sales fell 13% in June while trucks and SUVs rose 4%, according to Autodata Corp. Trucks and SUVs accounted for 63% of sales last month. Just five years ago they were less than half.
“Sales of Toyota's Camry, normally the top-selling non-pickup truck in the U.S., fell nearly 10%. But Ford's F-Series pickup, the top-selling vehicle in America, rose nearly 10%.
“Slowing car sales are good for consumers who are looking to buy a car, Caldwell said. Dealer inventories are growing before production cuts take effect and discounts are rising, so now is the time to buy.
“Even with the sales decline, auto prices remain high, according to J.D. Power and LMC Automotive. The average vehicle sold for $31,720 in June, a record for the month, surpassing the old record of $31,073 set last year.
“Some automakers are having to raise discounts and sell more vehicles to rental car companies to keep their sales numbers up. The average incentive spend per vehicle in June was $3,661 in June, also a record for the month. Even spending on trucks and SUVs is up about $350 from last year, J.D. Power and LMC estimated.” LA Times. Wanna bet on the long-term strength of the current American automotive industry?
So what’s the biggest difference between an original Van Gogh and fleet of vans that go? Only one has the long-term potential of vastly increasing value. Jobs, jobs, jobs? Are you tired of winning yet?
I’m Peter Dekom, and when we stop relying false promises, alternative facts and catchy but meaningless “America First” slogans and deal with a reality where we actually can create a strong and viable employment marketplace (investments in education, research and infrastructure), we just might “win a couple.”

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