Will our economy improve? I believe it will; it has been improving for about the last two years. I know this because I have a special crystal ball that reveals the future! Actually, part of the crystal ball is in print form: the weekly editions of Automotive News. I am particularly interested in the production and sales figures for manufacturers of motor vehicles. Fundamental to the health of our economy is the health and well-being of our automobile industry. According to Automotive News, in 2007 approximately 16.2 million light vehicles [cars, SUVs, minivans, pick-up trucks] were sold in the United States. But in 2009 only 10.4 million vehicles were sold. At that point, I had wondered if sales and corresponding production would continue to decline. However I began noticing that automobile manufacturers were slowly but surely increasing production. And this increase continues today.
In the January 9, 2012 edition of Automotive News, it was noted that several manufacturing plants, including those owned by Chrysler, Ford, GM, Hyundai, and Kia, are scheduled for plant overtime for their workers. And in the January 2, 2012 edition, the headline read “Forecasters: 5% bump in Q1 output:”
North American light-vehicle production will rise 5 percent during the first quarter of 2012. . . .
This is good news, especially coupled with the fact that 12.8 million vehicles were sold in 2011. Nearly 10 million were produced in North America. The difference (more than 1.5M) between last year’s domestic production and that of 2009 translates into the added derived demand of more than 6 million tires, wheel bearings, rims plus a whole lot of gallons of paint!
I also judge the health of the automobile industry by contrasting the proportion of new vehicles which are sold to retail customers versus those which are sold via fleet sales to car rental companies. When the proportion of retail sales is increasing compared to fleet sales, I suspect that our economy is also improving. This seems to be the trend right now.
How do the ups and downs of the automobile industry affect the millionaire next door? You may recall that 36.6% of the millionaires surveyed for The Millionaire Next Door were classified as “used vehicle prone.” But because of the dramatic decline in new car sales, especially back in 2009, the inventory of late model used cars for sale is at an all time low as a proportion of the total vehicles on the road. Due to this acute shortage, the price of used cars has actually increased over the last year. Looking at this objectively, some used vehicle prone buyers may find it more economical to purchase a new car as opposed to a late model used vehicle.
2 thoughts on “Our Economic Future on Wheels”
I can agree that values of used cars have not decreased as quickly as they did a few years ago mainly because of the increased demand. Does this make a new car depreciate more quickly in the first year or two vs the rates they had depreciated prior? I would love to hear more!
I would continue to caution people who are not yet wealthy from buying new. Many justify the purchase of a $40K vehicle over a $10K used car because of “reliability”. Yes, a $10K car may need more maintenance and may break down a few more times, but not $30K more.
Good point, Steve. Put another way: wouldn’t you rather pay yourself an extra $30,000 to handle and pay for your $10,000 car’s repairs?