Macro Wrap – The Future of the Car Industry, $F

by Enis April 24, 2013 8:15 am • Commentary

Ford reported solid results this morning, driven by almost 20% revenue growth in N. America, which is still by far its largest market.  American demand remains robust, while European weakness continued.  Besides the fact that Ford’s S. American business was hit by currency games by the Venezuelan and Argentinian governments (for those still not convinced that trust is the most important financial good), there was not much else to glean from the report from a macro perspective.

But trends in the car industry over the past decade are fascinating for long-term investors.  The Washington Post’s Wonkblog had a splendid article (that I found via Abnormal Returns), detailing the changing trends on American roads.  Here is the meat of the article:

Ever since the recession hit in late 2007, Americans have been driving less and less. Was that because of the horrible economy? To some extent, perhaps. But it’s striking that Americans are still cutting back on driving even though the economy is growing again.

Doug Short, who charts financial data, has put together a nice graph that uses the latest Transportation Department data on vehicle-miles driven and adjusts for population growth. Looked at this way, the plunge in driving is even more startling and began back in June  2005:


A bit of historical perspective is useful. This isn’t the first time Americans have pared back their driving habits — after the OPEC oil shock in the late 1970s, miles driven fell about 6 percent from the peak, though they started climbing again by the end of the recession in 1982.

This time, however, the drop has been much more severe. Since June 2005, vehicle miles driven have fallen 8.75 percent. The decline has persisted for 92 months and there’s no sign it’s abating.

Younger Americans have led this shift, driving much less at their age than the prior generation.  The Economist also emphasized the changing automotive landscape, highlighting the importance of emerging markets to traditional auto demand in its most recent issue.  The Wonkblog article pinpoints several factors that have contributed to this decline, including higher gas prices, the lingering effects of the recession, higher student loan debt, more young people using alternate means of transport, especially in cities, and the Internet.  It’s the last point about the Internet that intrigues me.

The Internet has been called the ultimate deflationary driver.  Industries as diverse as retail, media, finance and transport have been rapidly impacted.  It creates instant bridges between continents, broadens the access to information on level never before seen in history (if you think oligarchy is bad today, imagine how the few controlled the masses when most couldn’t even read), and widens social circles beyond just the neighbor next door.  It also allows for way too many Internet trolls, but no medium is perfect.

The Internet Age has fully arrived, and the investment implications are massive, even for the staid, old car industry, the epitome of American manufacturing.  Of course, the flip side is that we’ve now become spoiled and always expect better and faster new toys.  As the wise Louis CK once said, Everything’s Amazing and Nobody’s Happy.