The US stock market peaked on January 26, 2018 with the Dow Jones 30 Industrials Index reaching 26,617 on that date. The market dropped 3,272 points by April 2, 2018 which was a loss of 12.3 percent of its wealth. It’s value on Friday June 1 was no less than 24,542 – just 7.8 percent off its record high.
In the April 2018 monthly blog I discussed the very serious issue of collapsing (imploding) demographics on a global scale. Fewer marriages, fewer children and smaller families will translate into less robust economies, less demand, falling values, falling tax revenue, and impoverished pension systems. Just as an unprecedented number of plant and animal species are literally dying out, the outlook for future growth of the human population of the planet earth is not bright. In the USA, fully 44 percent of individuals between the age of 40 and 60 are literally single – in other words, no spouse and no significant other. In Germany, 46 percent of males polled answered that the “ideal family size” is one person – no spouse, no significant other and no children. Many countries in Eastern Europe are already losing people. Not enough births, lackluster local economies, not enough immigrants, and many of the educated & ambitious local younger people migrating west in the search of a better career and a better future. The countries experiencing this to varying degrees include the Baltic countries (Lithuania, Latvia and Estonia), Romania, Bulgaria, Belarus (formerly known as “White Russia,” the Ukraine and Russia itself. The demographic economies of Southern Europe are not in much better shape. Greece, Italy, Spain and Portugal all fall into the same category. The most robust European demographic economies of Germany, Austria, Switzerland, Liechtenstein, Scandinavia (Denmark, the Faeroe Islands, Norway, Sweden, Iceland and Finland) and the Low Countries (the Netherlands, Belgium and Luxembourg) continue to attract record numbers of immigrants due to too few local workers and too many vacant job positions. The remainder of Western and Eastern Europe fall in between the countries mentioned above – i.e. those literally dying out and those still able to grow domestic economies. Latin America and the Caribbean are rather depressed. Many villages and smaller towns in Mexico and Central America have already lost many of their people to the USA. In the USA, there is a big disparity between the booming coasts (both Pacific and Atlantic) and the states in the interior of the country. There are of course exceptions. Non-Pacific or Atlantic states such as Colorado, Texas, Iowa and Nebraska are considerably healthier than the others. The newly elected mayor of Santa Fe, New Mexico said it best – the city is basically missing the entire demographic of people between the ages of 25 and 40. In economic terms, this is the age group one can least afford not to have. These people tend to be at the peak of their earning and spending power, driving all important demand for real estate, motor vehicle and appliance sales.
Other news that caught my attention over the past month is that the “Big 3” automakers of Detroit (GM, Ford and Chrysler) all plan to kill off most of their passenger car platforms in between now and 2022. They will concentrate mostly on SUVs, light trucks and crossovers. Crossovers are basically SUVs built upon passenger car platforms instead of light truck platforms. Passenger car sales have fallen to 32 percent of new auto sales in the USA compared to 75 percent worldwide. When one includes all vehicles (not merely passenger cars and light trucks), SUV-light truck-crossover sales represent just 6 percent of the global total. “Other” vehicles include 2-wheelers, 3-wheelers, large commercial trucks, aircraft, trains, trolleys, ships, boats, as well as non-motorized vehicles. Global new vehicle sales are now at the level of 154 million units per year. 66.5 percent of this market is held by Asian companies, 25.2 percent by European companies and just 8.4 percent by American companies. In terms of annual unit sales, Ford ranks number 6 in the world, GM number 12 and Fiat Chrysler number 13.
My take on this is that the “Big 3” continue to retreat, much like the great American independent automakers before them. The last great American independent automaker to die was AMC or American Motors Corporation of Kenosha, Wisconsin in 1987 (they were purchased by the Chrysler Corporation). They sold the brands of AMC, Rambler, Jeep, Renault, as well as Kelvinator refrigerators. AMC was formed in 1954 out of a merger between Nash-Kelvinator and Hudson. Nash was a carmaker which traced its corporate ancestry to the Jeffrey Company. Hudson once included the brands of Hudson, Essex and Terraplane. Jeep grew out of the Willys-Overland Company from Ohio, and the actual famous Jeep product was developed by Bantam during World War 2. Other brands once owned by Willys-Overland included the likes of Kaiser, Frazer and Henry J, these last 3 having been launched by Henry J. Kaiser of California – he is famous for the manufacturing of the World War 2 “liberty ships.”
The car business is an expensive business to be in, with very high financial barriers to entry. It requires a very large amount of capital, and much of this capital has to do with retooling cost to make new models. The final model which killed American Motors was the failure of the Matador Coupe, a car introduced to the market in 1974. The final model which killed Studebaker (they left the car business after the 1966 model year) was the failure of the Avanti, competitor to the Ford Mustang which came to the market in 1963. The Matador and the Avanti were not bad cars, but they just failed to sell in sufficient numbers to recoup retooling costs for AMC and Studebaker.
GM in the USA is basically Chevrolet, GMC and Cadillac. Buick has become a brand largely for the Chinese market – Buick sells 4 times as many vehicles in Mainland China compared to all of the USA, Canada and Mexico combined. With the shift into SUVs and light trucks, there will now be little difference between Chevrolet and GMC. The Ford Motor Company has just 2 brands, these being Ford and Lincoln. Both Cadillac and Lincoln are luxury brands which were once the largest luxury brands in the world (many years ago). The US market has 39 brands for sale today from all automakers. 20 of these brands are luxury brands, and Lincoln ranks just 7th out of these 20 luxury brands for sale in its native USA. The number one luxury brands in the USA in terms of unit sales are Mercedes-Benz, BMW, Lexus, Audi, Infiniti and Acura.
SUV, light truck and crossover now comprise 97 percent of Chrysler sales, 90 percent of Ford Motor Company sales and 84 percent of GM sales. Chrysler is actually part of Fiat Chrysler Auto, an Italian-owned company based in the Netherlands for tax purposes. Fiat Chrysler has unsuccessfully tried to sell itself to both GM and Volkswagen in the recent past – neither company wished to merge with Fiat Chrysler.
SUVs, light trucks, and crossovers tend to be much more expensive compared to passenger cars, as well as being much bigger and heavier – in other words, their environmental footprint is much bigger. When (not if) the economy contracts the next time around, more expensive vehicles will see their sales decline more than the average decline.
