Posts Tagged ‘inflation’

Thoughts on Trends in New Automobile Sales and Neoliberalism in USA

July 19, 2020 10 comments

While trying to write the next part of my series, about the necessity of being a multi-millionaire under late capitalism, I had an interesting insight which didn’t fit in that series but was, still, very important. In some ways, this is a much belated sequel to one of my older posts about how the increased cost of cars is about late capitalism in action. In that post, I made the observation that the much diminished interest of Millennials, Gen Y etc in car ownership has a lot to do with the deleterious effects of late capitalism aka neoliberalism (specifically its american variant) on their lives. Also, I am not hopeful about late capitalism disappearing without causing far more damage and misery to almost everybody. Things are going to get far worse.. I mean.. interesting.

The first time I considered writing this post was about three years ago when we started hearing about how american automobile manufacturers were going to end the manufacture of everything other than pickup trucks, crossovers and a few high-margin car brands. At that time, the most common explanation floated for this shift centered around how american consumers had fallen out of love with cars and gone for pickup trucks and crossovers. Even at that time, I though this explanation sounded highly dubious- but was just not interested in following it, as this occurred at around same time as election of Trump. But I seldom stop thinking about an idea or topic, even if it is on the backburner.

A few days ago, a number of random occurrences made me seriously revisit this topic. It started with a seemingly random search about the number of automobiles sold in USA by year from 1978 and 2019. It yielded this graph, which displayed some rather interesting information. Note that 16 million vehicles were sold in 1986, when the population of USA was 240 million. Interestingly, 2019 saw the sale of only 16.9 million vehicles at a time when population is 328 million. Do you see the problem? Let me explain.. having an automobile is necessary if you live in almost any part of USA except perhaps NYC, Boston, parts of the Bay Area and a few other cities with OK public transit. Therefore, the ratio of vehicles to population should remain relatively constant.

But it hasn’t! Now somebody like MikeCA might say this has something to do with automobiles lasting much longer nowadays as compared to the mid 1980s. Well.. the increased quality and longevity of cars (especially Asian ones) definitely plays into the lower demand for new cars- but it, as best, can only explain part of the current situation. So what are the other factors I am alluding to? Well.. for starters, truck-chassis based SUVs and pickups increasingly became the main revenue generators for automobile manufacturers- especially american ones after the early 1990s. Then something odd happened after 2009.. old-style SUVs were very quickly supplanted by crossovers, pickup sales remained about constant and car sales after recovering for a few years between 2010-2015, entered a steep decline after 2016.

But what happened in rest of the world. Let us start by talking about countries in the European Union. Long story short, nothing similar occurred in the same time span. Sure.. sales were kinda low in the very early 2000s and between 2008-2012, and there has been a slight overall trend toward decline- but one that is linked to much larger demographic trends. But whichever way you look at it, the overall sales numbers were in same ball-park as USA (12-16 million/year) but there was no equivalent change in the types of vehicles sold. In other words, Europeans kept buying the type of cars they have been buying for decades. The same held for markets such as Japan, South Korea and other Asian countries except China.

China is an interesting case in that it has become the largest market for automobiles for the past decade. Yet, even in this still unsettled market, cars and a small to medium sized crossovers dominate the market. My point is that people in every large market for automobiles, other than USA (and Canada) are buying the same categories of the automobiles they have been buying for decades. So what is so different about USA that it is the only large market to have experienced an actual shift in the type of vehicles sold over past two decades? And what any of this have to do with late capitalism aka neoliberalism?

To understand what I am getting at, we have go back a couple of decades. See.. when I first came here a bit over two decades, I noticed many patterns. The one most relevant to this post concerns who bough new vehicles, which types and at what stage in their life. The brief version is as follows: buying a new car (frequently something from a compact hatchback to medium sedan) was almost like a ritual for most adults after they had got their first decent and somewhat stable job. so, while most people started with hand-me-downs or used cars, they would start buying new cars once they hit one of the supposed markers of “real” adulthood aka a decent job. I never saw anyone buying a new pickup unless their job required it.

While SUVs were a thing in the late 1990s, they were almost always bought by well-off people with kids who lived in McMansions and/or in certain expensive suburbs or exurbs. Almost nobody bought a new SUV as their first new automobile. It also helped that new compact to medium sized cars could be purchased for somewhere between 10-20k, and Japanese ones offered very good value for money. Even a few american ones were perfectly OK, as long you sold them off by the 6th year. My point is that new entry- to mid- level cars of decent to good quality were quite affordable- even for the median incomes of that era. According to most inflation calculators, 1k $ in 1999 is supposedly equal to about 1.5k $ in 2019. You will see why this matters soon.

Today the median car in those categories costs somewhere between 15k-30k, which sorta tracks inflation- but is a bit more than what it would have been in a perfect world. But what about incomes? Well.. as it turns out median and mean incomes adjusted for inflation have not really changed between 1999 and 2019- which is a fancy way of saying that a job that paid 30k/year in 1999 would pay 45k today. But there are two problems with this simplistic assumption. Firstly, many of the job which were available to a person in 1999 do not exist today. To make matters worse, people who had a decent stable job in 1999 no longer have a stable job that pays the same, even if they managed to stay in that field. The situation is even worse for new entrants who are stuck in an endless series of low-paying and unstable jobs unlike previous generations.

And it gets even worse. The real cost of living during the intervening two decades has increased far more than the 50% claimed by governmental agencies. Take rents for example. Rents today are somewhere between 2-3 times what they were in 1999, even if the apartment building has been standing there since the mid 1970s. The same is true for house prices. Note that the situation is far more dire in certain coastal metropolitan areas. Then there is the issue of rising costs in higher education. The student loan load of a person graduating from university in 1999 was a fraction of what it is 2019- and those have to be paid. We also cannot forget the insanely high costs of health insurance and high copays of most “healthcare” plans- once gain much higher than in 1999. Long story short, most people between 20-40 are broke or close to it.

And this is why the demand for new average-priced cars aka one of the signifiers of adulthood in USA have dropped so sharply. But what about the continued demand for new pickups and crossovers? Well.. guess who is buying them. Yes, it is almost exclusively Boomers and older Gen-Xers. These are the only two major groups who still have the financial capacity to buy new automobiles and like older people tend to, they buy large and bulky vehicles. Also, part of pickup truck demand is driven by people who have to actually use them for work in flyover country.

In summary the drop in demand for new (average) cars is driven by the same factors responsible for younger generation not having kids, marrying late or never, not buying houses, not eating out in expensive restaurants, not going on expensive vacations etc. They are fucking broke, overstretched, overworked and have no job security. The reason we do not see similar trends if change in automobile type preferences in Europe is that costs of living (housing etc) approximate income much better + healthcare is inexpensive and universal + higher education is inexpensive. The same is true of East-Asian countries such as Japan, South, Korea etc and yes, even China. But murican exceptionalism feels good, on the hole, doesn’t it..

What do you think? Comments?