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Has America Lost It’s Drive? – Pt. 4

In Part 3 of this series, I wondered a couple of things.

 - With the vehicle/1000 people number in the range of 825 to 845 since 2004, is the market near saturation?
- Is the January sales number of 14.2 SAAR (seasonally adjusted at annual rate) enough to maintain the vehicle/1000 people number?

For the first question, I have to again credit Roger Chittum for pointing me to this 2007 paper, Vehicle Ownership and Income Growth, Worldwide: 1960-2030, by Dargay, Gately and Sommer (32 page pdf, data through 2002.)  There’s a lot to this paper, including projections into the future for vehicle sales and fuel consumption, worldwide.   My immediate interest is in their use of a Gompertz function to estimate vehicle market saturation as a function of per-capita income.

Here is one of their graphs.

 Graph 1  Vehicle/1000 Gompertz Function of Per-Capita Income

Their model indicates flattening above about $30K per year, and leads to a saturation point in the U.S. of about 852 vehicles per 1000 population.  Saturation points for various countries also depend on urbanization and population density.  See the paper for details and background.

This indicates that the U.S market is about 97% saturated, give or take a point.

What does that suggest for vehicle sales going forward?   Karl Smith led off the month pointing to this graph from Calculated Risk, estimating light vehicle SAAR for February at 15.1 million.  With that, on to question 2.
 
I already have the data in hand for vehicles/1000 population (see part 3.)  The data for the Calculated Risk SAAR graph comes from BEA, Table 7.2.5S.  Plotting a scattergram of YoY change in Vehicles/1000 population vs annual average SAAR for the years 1990 to 2009 gives us this picture.  (See notes, below.)

 Graph 2   SAAR and Change in Vehicles/1000 Population

This suggests that the break even point for vehicles per 1000 is right around 14.7 million annual average SAAR.

The official vehicle/1000 numbers are only available up to 2009.  But we have the SAAR data for 2010 and 2011.  Annual average SAAR for 2010 is 11.77; for 2011, it’s 13.05.  You probably don’t want to take the values suggested by Graph 2 too literally, but seeing the vehicle/1000 number slip to around 815 for 2011 should be a reasonable expectation.  This is still slightly above the 95% saturation level.

Average light vehicle SAAR for the first two months of this year is 14.65 – right at the break even point for vehicles/1000 population.  

 Notes on Graph 2

The red dots represent data for 2001 and 2002.  The SAAR values look reasonable.  The changes in vehicles per 1000/population do not.  An increase of 25 in one year, from 800 to 825, followed by a decrease of 10 in the following year with SAAR, nearly identical (17.46 and 17.15) makes no sense.  An average of the two, plotted for both years as yellow dots, by some odd coincidence, lies exactly on the best fit line.

The R^2 value of .43 is less than stellar, but not terrible.

Eliminating the two questionable points raises R^2 to a respectable .65.

Cross posted at Retirement Blues.

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Is America Losing Its Drive? – Pt. 3 Vehicles per 1000 Persons

In private communication, Roger Chittum got me thinking about the vehicle component of gasoline consumption. I’m going focus on the gross vehicle numbers, and not get too deeply into the car/truck/SUV product mix detail.   Data is from the Department of Energy TRANSPORTATION ENERGY DATA BOOK: EDITION 30—2011.   (Warning:  414 page pdf.)

According to Table 3-5 on page 3-9, vehicle ownership, measured as vehicles (both cars and trucks) per 1000 population, peaked in 2007 at 843.57, and dropped by 1.88% to 828.04 in 2009, two years later.  Data presented in the source is from 1900 to 2009.  This graph shows the data from 1950 to 2009.  Recessions are highlighted in red.

During the post WW II era up to 1982, recessions might have slowed the growth of vehicle ownership, but they did not cause a decline.  Even the severe recession of 1958 only caused a flat spot on the curve.


 

This changed with the double dip recessions of 1980 to 1982.

 

The reduction from 1981 to ’82 is miniscule.  But since then, every recession has led to a significant reduction from the previous year.  As an aside, this is one more time series that shows a change in character right around 1980.

This source indicates the most recent value for the U.S. is 765, though it’s not clear what “most recent” means.  If this is accurate, then ownership has back-tracked to the 1994 level.   This would correspond to a 7.6% drop from 2009, and an astounding 9.3% drop from the 2007 peak.  I don’t believe it; but that value is indicated with a red dot on the next graph, as a point of reference.

I’ve also included some best fit straight lines to show how the slope has changed over time.  The decreasing slope and more serious response to recessions might result from a market being close to saturation, but that’s just a guess.

One of the reasons I’m skeptical of the red dot point is that new vehicle sales have recovered substantially from the 2009 low, as this graph from Calculated Risk demonstrates.  (The August, 2009 spike is the cash for clunkers event.)

This might not be enough to stop a continuing slide in the vehicles per 1000 population number, but I think it’s enough to keep it from falling off a cliff.

Another perspective on vehicle use comes from Table 3.3 on page 3-5 of the Data Book.  This graph shows the Federal Highway Administration estimate of vehicles in use.

Except for recessions (highlighted in red on the total line) growth of the total vehicle count has been been quite constant over four decades.  But, since the mid 80′s, car sales have been stagnant.  All of the growth since then has come from truck sales.  It will be interesting to see how these trends develop over the next few years.

Part 2
Part 1
Cross posted at Retirement Blues

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Has America Lost its Drive? Part 2

I made a mistake in my original post.   Graph 4 in that post was based on the wrong data set.  As Roger Chittum pointed out in comments, that graph only covers a subset of total gasoline deliveries.

This is the correct graph.  (Source.)  Thanks, Roger!

Graph 1 Gasoline Supplied

The fall off in gasoline delivery is not as extreme as I indicated, but it is still real.  Here is a close-up view of data for the current century, from the same source.

Graph 2 Gasoline Supplied This Century

Seasonal changes are dramatic.  Peaks occur in July or August, valleys in January or February of most years.  May values, highlighted with blue dots, and September values, highlighted with yellow dots, are recurring secondary peaks and valleys, respectively.  July values are highlighted with red dots.  The years 2008 and 2010 are accented with contrasting blue line segments.

In 2008, gasoline consumption dropped dramatically.  May was down slightly, compared to ’07, while July and September were down a lot.  Through 2009 and ’10 there was a slight recovery, with all three highlighted months showing increases.  The 12 month moving average, in pink, stopped falling, but failed to increase very much.

Then, in 2011, gasoline deliveries turned down again. This can be seen clearly in the highlighted months and the moving average. Some of the standard explanations are changing demographics and retail habits. An aging population with more retirees might tend to drive less – though this is not my personal experience. Kids these days cruise on social media rather than pleasure drive through the streets of town as we did in my day. On-line shopping, though only about 5% of total retail, is growing rapidly.

You can’t gainsay any of these trends.  They are probably affecting the big picture.  But it would a stretch to say that they can account for less gasoline use in 2011, but not 2010 or 2009.  Especially so, since this past year was supposed to be a recovery from the previous economic doldrums, and the expectation would be for the improvements of the previous two years to continue.  But it looks like something is happening, economically or culturally, to cause another downturn in travel – though not as dramatically as I suggested in the original post.

The estimate of vehicle miles driven, from the December, 2011 report by the Federal Highway Administration, tells a similar story.

Graph 3 Vehicle Miles Driven – Moving Total

The years 2008 and 2010 are highlighted in yellow.  The pink line traces the November, 2011 low back through the Summer of 2004.  Again we see recovery in 2009 and ’10, and a resumption of the slide in 2011.

The slope change in mid-2005 is intriguing.   This precedes the April 2006 peaks in the Case-Shiller Composite-10 and Composite-20 Indexes by several months, and the October 2007 peak in the S&P 500 by over 2 years.  The new slope remains relatively constant right up to the peak in November, 2007. 

Meanwhile, gasoline prices have increased again in the last month, after sliding about 70 cents from the high in May, 2011.  This gloomy article at Seeking Alpha blames part of the price increase on “stronger demand, courtesy of a growing economy.”  The data simply does not support this opinion. Instead of text book supply-demand behavior, gasoline prices and miles driven exhibit basically similar motion

I still contend that the prices of petroleum products are manipulated on the supply side.  All the data I’m aware of supports this.

I expected the original post to be a one-off, but the current picture is interesting, with no obvious explanation.  This might bear looking into in another 6 months, or so.

Cross posted at Retirement Blues.

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Has America Lost its Drive?

Yesterday,  Karl Smith posted on Oil and the Structural Recession.  This seems to be one of Karl’s thinking-out-loud posts, with more questions than answers, some convoluted reasoning, and a conclusion that higher gasoline prices are in our future.  If I read him right, this will be due to a demand pull.

He included this graph from Calculated Risk.

Graph 1.  U.S. Vehicle Miles

The number of miles driven tends to flatten during a recession, then recover quickly when the recession is over.  At least, that’s the way it used to be.  The Miles Driven curve seems to have been losing slope since the late 90′s, and was close to flat-line during the housing bubble last decade, when everyone supposedly felt rich.  There has been no recovery after the recent Great Recession, which officially ended 32 months ago.

 The same CR post cited above also includes this next graph.

Graph 2.  YoY Change in Vehicle Miles

This confirms my eye-ball assessment that the slope in the first graph has been in decline since long before the oil price bubble of recent years.

But here is a contrary development.  Calculated Risk also reports that the truck tonnage index is way up for all of 2011, and especially in December, when it posted an all time high.

Graph 3. Truck Tonnage Index

Truck traffic is way up, but total miles driven, per graph 2, has been mostly in decline for four years.

This suggests that discretionary personal driving has been sharply curtailed.  I’m having a hard time coming up with any alternative explanation.  Can anybody suggest one?

Just in the last couple of months, it seems that discretionary driving has taken a deep plunge that has not yet shown up in the data posted above.  Deliveries to retail gas stations have been slumping for well over a decade, and now have fallen off a cliff.  If gasoline delivery is just-in-time, as I believe it is, then deliveries are an excellent proxy for consumption.

By the Way, improved fuel economy cannot account for more than a small fraction of this change.  The big improvements in fuel economy happened during the 80′s, when fuel deliveries were in an upswing.  Since 1990, fuel economy improvements for the actual fleet on the road have been on the order of 0.5% per year.

 Graph 4.  Gasoline Retail Deliveries

I made my own graphs of the retail delivery data (not posted,) and there is, surprisingly, no particular response to the recessions of 1991 and 2001.  It’s not easy to find any recession on Graph 4.  Deliveries were slumping even before the Great Recession, so whatever effect it might have had on its own was subsumed by the general trend.  The above graph is noisy, due to lack of seasonal adjustment.  The lowest row of dots over most of this graph represents January data.  Summer months cluster at the top of the array, as you would expect.  Those two lonely points in the lower right corner are October and November, 2011, the most recent data shown.

It’s remarkable that gasoline deliveries are now substantially lower than at any time available in this data set. spanning about 30 years.  And I would never have guessed that anything like this was happening, based on my many trips on I-75 between Detroit and Toledo.  That route must not be a representative sample.

In a comment on Karl’s post, I said that I see all petroleum prices as highly manipulated on the supply side, with demand as a follower.  This data makes me think that the same is true of gasoline, in particular.  But it can’t be the entire story for the decline in consumption.  There is no clear connection between deliveries and gasoline prices over the last several years.

I don’t know where gasoline prices are going.  Karl might be right that they are going up.  But I don’t see any way that this can be due to a demand pull.

Mish also has a couple of recent posts relevant to this topic.

H/T to commentor rjs at Karl’s post, who got me thinking about this, and provided a key link.

Cross-posted at Retirement Blues.

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Libertarians, Government and Choice

by Mike Kimel

It has been a very long time since I looked at the National Review. Apparently it is still there.

Jonah Goldberg (apparently also still there) had a post that begins like this:

And now let us recall the “Fable of the Shoes.”

In his 1973 Libertarian Manifesto, the late Murray Rothbard argued that the biggest obstacle in the road out of serfdom was “status quo bias.” In society, we’re accustomed to rapid change. “New products, new life styles, new ideas are often embraced eagerly.” Not so with government. When it comes to police or firefighting or sanitation, government must do those things because that’s what government has (allegedly) always done.

“So identified has the State become in the public mind with the provision of these services,” Rothbard laments, “that an attack on State financing appears to many people as an attack on the service itself.” The libertarian who wants to get the government out of a certain business is “treated in the same way as he would be if the government had, for various reasons, been supplying shoes as a tax-financed monopoly from time immemorial.”

If everyone had always gotten their shoes from the government, writes Rothbard, the proponent of shoe privatization would be greeted as a kind of lunatic. “How could you?” defenders of the status quo would squeal. “You are opposed to the public, and to poor people, wearing shoes! And who would supply shoes . . . if the government got out of the business? Tell us that! Be constructive! It’s easy to be negative and smart-alecky about government; but tell us who would supply shoes? Which people? How many shoe stores would be available in each city and town? . . . What material would they use? . . . Suppose a poor person didn’t have the money to buy a pair?”

All that is true. But what Rothbard apparently didn’t get, and no doubt Goldberg doesn’t either, is that it goes the other way too. If people always got their shoes from the private sector, it would never occur to anyone that the government might provide shoes. Now it might seem stupid for the government to be in the business of footwear distribution, and in general, outside of the military, my guess is that it is.

But sometimes a different approach is what works. Sometimes when the government is doing things, it is doing them inefficiently and the private sector can do better. But sometimes it goes the other way. Sometimes when the private sector is doing things, it is doing them inefficiently and the government can do better. And sometimes, sometimes its a good idea for things to be done worse, and in a way that only the government can.

I’ll give you an example. I’ve noted a few times that you can stroll into most car dealerships in Brazil today and buy a tri-flex car. That is, the same car can run on any mix of gasoline, ethanol and natural gas. (There are two fuel tanks – one for ethanol and/or gasoline and one for natural gas.) You can then drive that vehicle into any number of fueling stations and fill up with whatever fuel is going to get you the most miles (er, kilometers) for your dollar (er, real). The technology to run cars on a number of different fuels, which you won’t see in the US for a very long time, is marketed under such exotic brand names as GM, Ford, Toyota, Honda, Volkswagen and Fiat to name a few. (Look ‘em up if you haven’t heard of ‘em.)

I’ve posted on how it came to be that Brazilians have choices that Americans do not, namely to buy a tri-flex vehicle. The Brazilian government wanted to reduce the country’s dependence on gasoline, but it realized that nobody would buy a car that ran on a fuel other than gasoline if there was no place to buy that fuel, and hence no manufacturer would make such cars. The government also realized that Shell and Esso and Texaco (remember them?) weren’t going to start selling other types of fuel because there weren’t enough cars on the road that could use those fuels. But the Brazilian government owned an oil company that had a chain of gas stations. One fine day, that chain of gas stations started selling ethanol even though there was no market for it. It wasn’t profitable. It was insane. No private company would have done something that stupid. But the result, a few decades later, is that about 80% of cars sold in Brazil in 2010 were flex-fuel. Guess what percentage of cars sold in the US in 2010 were tri-flex?

Rothbard would never approve of what the Brazilian government did. Neither would Goldberg. Personally, I like having choices. I wish I could pick among three different fuels for my car and go with whichever is cheapest. I suspect that in a few decades, when that technology finally arrives in the US, Goldberg might like having those choices too.

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The typical American family can’t afford the typical new car!

Moneycentral author Liz Pulliam offers advice using one American symbol of success, the car, as one measure of the times.

I had suggested that if you can’t pay cash for your next car, you should make a down payment of at least 20%, finance the balance for four years or less and make sure the resulting payment is no more than 10% of your gross income.

[One]…reader did the math and sputtered, but that means the typical American family can’t afford the typical new car!

Someone who purchased a new car last year, when the average price was $28,966 according to the National Automobile Dealers Association, would have needed a household income of nearly $65,000 to swing a purchase under my formula. That assumes a 5.75% interest rate, which Edmunds.com says was the average paid by buyers who financed new cars in 2009. The latest statistics from the Census Bureau show median household income was about $50,000 in 2008. “Median” means half of all U.S. households earned less.

Then Harvard bankruptcy professor Elizabeth Warren (now on loan to the Obama administration to lead the congressional oversight panel for the Troubled Asset Relief Program) and her daughter Amelia Warren Tyagi wrote a terrific book called All Your Worth: The Ultimate Lifetime Money Plan

You can play with your own numbers here.

Edmunds has an ‘affordability’ calculator that allows a buyer to work the numbers from a different angle…with similar results for a total price range affordability. Using “$4000 less $600 car insurance and $1000 maintenance = $3600/yr” is about $300/month at 4.1% (a quick call to Triple A) for 48 months equals a car from $13,600 to $16,300 tops.

Ouch.

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Japan – GDP – exports – manufacturing – autos – Toyota

Forget the Eurozone for just a minute. Japan’s problems are big: Toyota is a major exporter/employer. Last year 48% of all new standard passenger vehicles sold in Japan were Toyota (or its Lexus brand). The WSJ article describes Toyota’s status in Japan as the following:

In short, Toyota is to Japan what General Motors Corp., in its heyday, was to America. And for a beleaguered country that has suffered a series of institutional blows in recent months—the collapse of the long-ruling political party, the bankruptcy of its champion national airline, a renewed bout of deflation— the global humiliation of Toyota may be the most psychologically damaging blow of all.

Psychological blow, what about an explicit economic blow! Toyota is certain to drag the only Asian G7 economy down due since auto exports are big in aggregate export income.

Japan’s single largest export category in December was, of course, manufacturing: 22% of total exports. And a huge 14% of the total value of exports in December came from motor vehicles (auto sales, that is – separate from parts).

The Japanese economy grew 1.14% in Q4 2009 with a huge 0.67% contribution from exports. The second major contributor was private consumption, which added 0.39%. Going forward, consumption and export contributions are likely to wane from the major Toyota recall campaign that is underway.

First the direct export channel will probably crumble as demand for Toyota cars derails. Second, there will be a lagged labor market effect. Sure, workers will be needed to address the recalls; but the the loss in hours stemming from a drop is sales is likely to be much larger, and the net jobs effect negative.

Toyota is a major employer in Japan that currently has 320,808 employees and has already shuttered doors (at least temporarily) in other countries. It’s only a matter of time before the effect hits the home labor market.

This is big. I wouldn’t be surprised if the IMF downgraded their forecast of Japan based solely on Toyota’s misstep.

Rebecca Wilder

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July Auto Sales

By Spencer,

July auto and light truck sales are being reported at 11.2 million annual rate.

That is a very significant increase from the second quarter average of 9.5 million and implies that consumption in the third quarter GDP data will be up significantly.

I do not have detailed data of how much of this is due to “Cash for Clunkers”.

But the point that people are willing to take on a new set of car payments is a good sign for consumer confidence and spending.

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I Do Not Think These Words Mean What the Reporter Thinks They Do, Auto Sales Version

Via Dr. Black, this piece yields preciousness:

“You have to stay on top of your game,” said Sklar, 65, a straight-talker who wears cuff links to work and has managed sales crews for a quarter-century. “You have to maximize your opportunities. You have to do what you have to do to make a deal.” [emphasis mine]

Those who wonder why Philadelphia’s economy has lagged the rest of the East Coast may speculate on the quality of its reporters.

More on Dealers later, when I have more dependable Internet access.

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