Not to add to U.S. auto execs angst, but consider the Federal Reserve Board’s “emergency meeting” to cut interest rates by three-quarters of a percent. It’s the first cut between regularly scheduled meetings since the September 2001 terrorist attacks. While a recession may provide some short-term relief to gas prices, oil analyst Tom Kloza offers this advice (via CNNMoney): "I wouldn't go out and buy that Hummer; It's still prudent to behave as if record gas prices are just one event or one economic recovery away." Mark Zandi, chief economist at Moody's Economy.com tells the AP (via WTOP News): “When the economy stumbles, you have to begin living within your means, or you'll be forced to do so." Example given: Denise Dorman of Geneva, Illinois. To avoid making new-car payments, she’s not going to replace her 12-year-old Jeep Grand Cherokee (with 125k miles on it). If that’s the start of a trend, Chrysler and the rest of the industry are headed for big trouble.
Find Reviews by Make:
Read all comments
The cheapest car is the one you already own. I think consumer confidence is shot right now, and recession will become a self-fulfilling prophecy.
Unfortunately the US economy is built on so much vapor that this sub-prime debacle might bring it crashing down to earth. When the financial services “industry” is worth more than the manufacturing sector, you know bad things are inevitable. After all, what is the root of a national economy if not the trading of tangible things?
Time to invest in Autozone stock!
(Note that I didn’t actually recommend getting parts from Autozone.)
Sajeev why would you invest in AutoZone? Their parts suck, and rarely fit if the do have what your looking for.
After all, what is the root of a national economy if not the trading of tangible things?
What major goods do we still produce here? We seem to import just about everything, even our “domestic” cars.
RE: dean
“After all, what is the root of a national economy if not the trading of tangible things?”
Information.
There are at least three cars I would buy, 1 of them a new model not available used that I would have to belly up at a dealer for. But with things in flux I’m going to keep my jalopy going for at least another year. If it dies, I’ll drive my F-150 to work. More gas for it sure, but cheaper than payments and I get to drop coverage for the other car, making it dead even.
You’d be surprised at the volume of things we produce and assemble here, including “domestic” cars.
Redbarchetta: well I don’t know if NAPA or others are publicly traded for one. But more to the point, AZ is like corner drugstores: they don’t make their money selling drugs/parts, they get people in for other stuff and make sure to situate themselves on valuable land to flip.
More to the point, if there really is an increase in older cars on the road, their stock will go up.
And for the record, I do buy fluids and certain parts there (brake rotors) but never anything complicated or electrical. Learned that the hard way with those fancy lifetime warranty alternators when I was young(er).
If we do land hard into a recession…you are really going to have to start churning out those deathwatch’s. If there’s one thing the Big 2.8 can’t endure right now, it’s a huge collapse in consumer spending. Personally, I think we are heading into a recession, so I am not at all optimistic.
The volumes not enough to stop the increase of our trade deficit month after month.
Sajeev Mehta: Time to invest in Autozone stock!
Purveyors of car parts might well profit, due to poeple holding on to their cars longer.
According to MSNBC, businesses that do well in a recession include:
Health care companies “because people get sick just as much in a recession (sometimes more) as they do when times are good;” Dry cleaners “you can’t dry clean your clothes at home;” Insurance companies “people still need to buy car insurance.” And “funeral home directors and accountants, can safely assume a recession won’t have much impact on death and taxes.” I’d add pawn shops and bankruptcy lawyers. (Maybe movie theaters and book stores, too, as folks look for an escape from reality?)
Some hobbies do well in difficult economic times as well, as people “hunker down” at home. When I worked for the non-profit American Radio Relay League (ARRL), that ham radio organization saw an uptick in activity during economic downturns.
Back to cars:
Would a bad economy present some opportunities to used-car dealerships?
Let’s see, Toyotas are being manufactured in Mississippi, Hondas in Ohio, Nissans in Tennesse, Mazdas in Michigan, Hyundais in Alabama and Kias in Georgia please tell me again who is in trouble????
This is bad news for all car makers as buyers generally have a flexible time frame when it comes to replaceing their cars – and when consumer confidence tanks then car purchases tend to get postponed.
Does Champion make different spark plugs just for Autozone? Sajeev’s point is logical, because Autozone is a classic “defensive” investment choice if one thinks people will be holding on to their cars longer. (Though I wish I’d bought the stock seven years ago, when it went for a fourth of today’s price.)
Dean asks, “what is the root of a national economy if not the trading of tangible things?” Well, to an increasing degree, the trading of INtangible things. Wouldn’t you like to own Hollywood? Or Google? National wealth comes from an educated and productive citizenry and natural resources. In both respects the US is the envy of most nations.
Redbarchetta asks, “What major goods do we still produce here?” Quite a lot, actually, more than any other nation. And “If…the value added of the manufacturing sector is used to measure relative size, China will not outrank the United States until 2013. Furthermore, when output is measured using real (inflation-adjusted) “1997 US dollars,” then the manufacturing value added in China will not exceed that of the United States until after 2020.” By that time China will be in demographic crisis, and we won’t.
Would a bad economy present some opportunities to used-car dealerships?
Never mind, Sajeev already spoke to my question: More to the point, if there really is an increase in older cars on the road, their stock will go up.
On an aggregate basis, the vast majority of Detroit Big 3 volume is produced in the US with higher levels of domestic part content than major foreign transplants.
Glenn: speaking of used car markets, if I really knew this trend was likely, I’d snap up 5-10 year old Accords, Civics, Camrys and Corollas…preferably mild fixer uppers…not only do they hold their value well, they sell amazingly quick here in Houston.
After all, what is the root of a national economy if not the trading of tangible things?
And, as everyone knows, middlemen never make any money whatsoever on the sale of the aforementioned tangible things.
Big deal, a recession’s not the end of the world — it’s a 6-month decline in demand followed by 7 or 8 years of growth. It is not a “huge collapse” in spending: It’s a minor decline in spending accompanied by immense amounts of media hand-wringing and political demagoguery.
In the last recession annual light vehicle sales fell a whopping … 1.3%.
Sooner we swallow our medicine and get on the other side of it, the better.
Learned that the hard way with those fancy lifetime warranty alternators when I was young(er).
You were doing it all wrong. I buy an alternator from them and keep it. Then if a friend kills his alternator, I trade with him and then return his bad one for a good one.
Well, I just managed to do something that I haven’t replicated in nearly four months.
I sold a car for more than $8000…
In 2006 about two thirds of my vehicles were sold for more than $8000. At least a third were over 10k.
In 2007, it went from about 40% in the early part of the year…. to absolutely zero by the end of the year. Thanks in great part to the subprime crisis, I actually sold more cars during the last quarter of this year than at any other time. It’s not even my primary work but if this trend continues, any downturn at the auctions will be more than made up for at the retail end.
Hondas and Toyotas are pretty much finance fodder at this point Sajeev (too high at the sales), but a well maintained vehicle that’s less than $3500 is literally selling like there’s no tomorrow. I’m even getting people from Tennessee and Alabama buying such non-descript vehicles as Windstars and Escorts.
Oh, and before I forget, FINALLY I’m not the only one in my neck of the woods who appreciates a good small car. Thank you OPEC!
50merc, does that demographic crisis have anything to do with their one child policy.
Quasimondo, do you and your friends drive the same cars?
Sajeev Mehta: Glenn: speaking of used car markets, if I really knew this trend was likely, I’d snap up [a bunch of 5 to 10 year old cars].
A good time to snap up some stocks too, Sajeev.
(Or at least keep on dollar-cost-averaging in.)
The CEO of Ford was quoted in today’s Globe and Mail newspaper(Toronto) that Ford could be okay or sustain a down turn, but he wasn’t sure he could save it!! Great words eh!
I must say…I wasn’t expecting a Dexter’s Lab reference on this site. Something new. :)
Gentle Ted, TTAC made it into the Globe & Mail story, in the form of a reader’s comment. Asserting that Mulally’s remarks were “stupid,” he advised: “if you look at US sites like the Truthabout Cars.com [sic] you get a better picture of all the Big 3 Makers.”
Storminvormin, China’s one-child policy made official the practice that will undermine many western states such as Italy (birth rate down to 1.3 per woman). From a BBC report: “A gray wave is bearing down on China. And China’s one-child generation is all too aware of what awaits it two or three decades down the pike – the prospect of each only child caring for two aging parents and up to four grandparents.”
“You have the prospect of 400 million Chinese elders, age 60 and over, by 2040, 80 percent of whom do not have any formal retirement pension, either public or private, most of whom won’t have access to government-financed health care. They’re depending on the extended family, but the government told them not to have children, or not to have more than one – or, in some cases, two. So a humanitarian crisis of colossal proportions looms…”
“You have the prospect of 400 million Chinese elders, age 60 and over, by 2040, 80 percent of whom, do not have any formal retirement pension, either public or private, most of whom won’t have access to government-financed health care. They’re depending on the extended family, but the government told them not to have children, or not to have more than one – or, in some cases, two. So a humanitarian crisis of colossal proportions looms…”
“China’s demographic turning point comes in just 8 years. That’s when the working-age population stops growing. A few years later, it will start to decline, and the number of retirees will grow. Now there are six working people supporting every retired person in China. By 2040, there will be just two.”
haha…
“When the economy stumbles, you have to begin living within your means, or you’ll be forced to do so.”
uhhh, you should always live within your means.
Time to invest in Autozone stock!
(Note that I didn’t actually recommend getting parts from Autozone.)
in all serious,
AZO, PBY were some of the best performing stocks during the last bear market 2000-2002.
The problem in China isn’t just the gray wave of an aging population. The one child policy and a general preference for male offspring has led to a an abnormal ration of men/women, meaning that there will be a huge number of old, single men with no offspring at all to count on.
Wow. So what you’re telling me is the government tried to fix a problem and has now created an even worse problem? That comes as a complete shock to me.
Recessions or downturns are only temporary if the fundamentals are good. With each decade dept has outpaced other financial growth, leaving us in a worse position.
A lot of the appearance of wealth has come with more dual incomes, longer hours and greater personal dept.
Having worked with China I think they will very soon be kicking ass, like they have for all but the last 200 years.
This recession is different in that there is no obvious sector to lead the recovery. The housing sector can’t lead because of the sub prime securitization mess. The auto sector can’t lead because of the Peak Oil situation and the cut off of the home equity source of funds. That leaves the alternative fuel sector which is regularly slammed on this site. Maybe doctor’s doing colonoscopies can lead the economy to recovery. I’ve got one scheduled for next week.
“Kevin: Big deal, a recession’s not the end of the world — it’s a 6-month decline in demand followed by 7 or 8 years of growth.”
when Japan’s economy hit the skids circa 1990, nobody thought it would last 15 or 16 years.
And China’s economy is built on the idea that Americans will continue to buy cool but really unnecessary stuff forever. Having lots of bitter umemployed young men loafing around without any chance for a wife, has, traditionally, made the Chinese Government a little nervous.
the announced interest cuts will do nothing as it was interest rate cuts Circa 2000 to head off the Dot.com recession that created the boom over the last 7 years.
and you thought that little gray haired Ron Paul is just a freak with his followers paultards. You should have listened to him. And US industrial manufacturing is smaller than that of Germany and Japan, with China dramatically approaching.
According to MSNBC, businesses that do well in a recession include:
And “funeral home directors and accountants, can safely assume a recession won’t have much impact on death and taxes.”
For God’s sake, don’t get behind on your taxes too!