Icon (Close Menu)

Logout

Good Luck With That (Gwen Moritz Editor’s Note)

3 min read

The news that new vehicles, especially SUVs, are flying off the dealers’ lots fills me with mixed emotions. I know that America’s rolling stock is aging — the average age of vehicles on the road is more than 10 years — and that the auto industry suffered during and after the Great Recession in ways that only the housing and newspaper industries can fully appreciate. Therefore, robust sales are good for one of our country’s most vital industries, and they suggest that American households are again willing and able to buy big-ticket items.

But I also know that some of this newfound demand is the result of the bargain-basement price of gasoline in recent months. If people were using the fuel savings to replace an older car with a more fuel-efficient model, it could make sense even when fuel prices inevitably rise again.

But the reports I’ve seen suggest just the opposite: People are buying big, expensive, low-mpg gas guzzlers. The savings from gas that’s 45 percent cheaper don’t go far when you get 25 percent fewer miles per gallon and your new monthly payment is $1,500 for the next five years — by which time the price of gas could have doubled.

Have you seen the sticker price on a Cadillac Escalade that will then get 15 mpg in the city? It’s approximately the same as my first mortgage, without the handy 30-year amortization. Good luck with that.

Clearly, there are some people who can afford $75,000 vehicles and only think of fuel prices as a cost of doing business. I am happy for those folks. But I can’t believe that in a country with a median household income of about $50,000 a year, there are enough people for whom such vehicles aren’t foolhardy to create the sales bonanza that’s being reported. The heart wants what the heart wants, they say, but aren’t bankers the least bit nervous about this renewed love affair with depreciating assets we can’t afford?

TrueCar.com, the online car-shopping service that is driving dealers crazy, announced a few days ago that its unspecified “research” found that there is a precise “tipping point” in gas prices that causes changes in consumer behavior. Specifically, SUV sales begin to rise when gas drops to $3 a gallon, and hybrid sales begin to drop when gas gets down to $2.77.

I’d like to see that research, because I don’t believe it. Those may be the points at which consumer behavior changed in 2014, but I remember that gas went from over $4 a gallon to barely $1.50 in a matter of weeks back in 2008. No one was buying SUVs that fall. Or hybrids either. Gasoline prices are clearly not the only factor in auto sales, but the euphoria of seeing the pump spinning so much slower may translate into some expensive decisions by people who are finally ready to spring for a new vehicle.

***

The run on new cars is, of course, good for the dealers and for the lenders that get in on the action. One would assume that it would also be good for those of us who tend to buy what the dealers call “pre-owned” vehicles. More people buying new cars means more supply of trade-ins, right? It should be the opposite of what happened when new car sales seized up.

But the reports I’ve seen suggest that used car prices haven’t yet started to drop, possibly because there is simply enough pent-up demand for cars, new and used, at least for a while.

One of those reports came from TrueCar.com, so you know I’m automatically suspicious. It said new car prices were up by an average of 1.9 percent in 2014 while used car prices were up 5.1 percent.

***

Speaking of used cars: Have all the TV news reports out of Cuba made you wonder just how they’ve kept all those 50- and 60-year-old cars running? My husband asked me what normalization of trade relations would mean for what must be spectacular auto mechanics whose skills will be of little use on cars that don’t have carburetors.

Gwen Moritz is editor of Arkansas Business. Email her at GMoritz@ABPG.com.

Send this to a friend