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Tuesday, July 12, 2005

Flawed Logic and Gas Prices

As the price of gas rises inexorably and creates a ripple effect in the price of goods and transport, one key issue has become the price of used vehicles. Used trucks and SUVs' values have plummeted while the value of used small cars has skyrocketed according to the Detroit News. Owners of SUVs and large trucks are also selling their vehicles as fast as possible, causing the value of those trucks to fall dramatically since the market for them is inundated. What bothers me about all this is the steadfast refusal of the media to address what is really behind this issue (our planet running out of easily drillable oil), and instead retreating into the box and thinking that the real reason for this historic selling off of SUVs is a myopic narrow reasoning of the situation. Here is a quote from the above article linked above that shows this:

But owners of big SUVs may also be dumping their vehicles because they foresee trouble in new large SUV sales, which are plummeting despite rebates of more than $4,000 by some manufacturers.

Huh? The reason people are dumping their SUVs is because they don't like paying 100 dollars a week at the pump. Only someone like an automotive sales analyst would assume that everyone thinks like he or she does, and makes asset purchases on the basis of future sales of similar assets. There is no evidence whatsoever to back the above claim, but there is plenty of empirical data and evidence to support the claim that higher gas prices lead to consumers purchasing more fuel efficient cars.

As long as the media and economists everywhere refuse to see the big picture and convince car companies that plummeting truck sales are really just an anomaly and not a trend, we will see continued failures and missteps by companies, and thousands of jobs lost. To truly analyze an industry, one must look beyond sales statistics and realize that there are many industries that function to support the auto industry. Dramatic changes in the oil industry, the steel industry, the plastics industry, etc. means dramatic changes for automakers. No amount of analysis of sales statistics will reveal to you that the price of oil is behind customer's changing taste. It's time for the products to reflect this new data.

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