An observation on synchronicity.
Last week, as we were getting ready to go live with our review of the 2017 Infiniti Q60, the news discussion on Fox Four concerned the Fight for $15 protests across the country. There’s always reminiscing about how small the minimum wage was back in the 1960s, but nobody explains what its value would be today. So: The $1.60 minimum wage in 1969 would be like earning $10.54 – $10.75 per hour today, depending on which inflation calculator you use.
I’ve used this example before, but working a minimum wage job full time for the whole year of 1969 would yield enough after taxes to pay cash for a brand-new Mustang convertible. Not the most loaded one, but a very functional Mustang. Today you’d have to work one minimum-wage job more than two years to buy that Mustang.
That’s not the worst of it. Today there’s an active, heated argument that minimum wages need to be done away with and let the market set the price for unskilled labor. Two years ago in Dallas, the Heritage Foundation’s Stephen Moore, who’s currently advising the incoming president in some undefined fashion, spoke to the American Legislative Executive Council and pushed not just that part, but said wages for teen workers should be half that amount. The education they get on their jobs, he said, more than compensates for the cut in wages.
Now I spoke to ALEC just before Moore, and he actually said, “You know, Ed’s right,” five or six times during his speech. He sat at our table and was engagingly charming. But as we have with so many critically important issues today, Baby Boomers have completely forgotten how good we had it when we were growing up.
Yet not everyone in our generation has benefited equally. One 71-year-old listener has written me regularly for years, asking questions and giving me parts of her life story. She wrote on July 5 that in her youth she’d been a teen backing JFK for the presidency; but in this election she was going to vote for Trump, as “Hillary scares.” Which isn’t surprising; I’m sure many Boomers followed that exact same path. But on the fourth of this month she wrote and sent a copy of her résumé, noting that she would like to go back to work. Then in a second e-mail she asked me about the 60,000-mile service on her 2013 Corolla; that will likely cost somewhere around $500 – $600, and she has only around $800 in savings. I cannot tell you how many individuals have written me with financial stories just as sad as hers; something has broken on their car that will cost a great deal to fix, and they have no practical way to pay for its repair.
That same day a gentleman wrote about his 2009 Nissan Rogue, over $12,000 still owed on it, the transmission shot. And for a rebuilt unit with labor he’s looking at $4,500. The last time Congressman Michael Burgess was on my program was November 26 (disclosure: I consider the Congressman a friend, I’ve donated to his re-election). We discussed the plan to privatize Medicare, and in its place give out vouchers; he said the proper terminology was “premium support.” This confused me, because I thought that’s what Obamacare was; but all I said was, “That’s never going to work, since 49 percent of American families couldn’t write a check for a new tire if one they have went flat.”
If that discussion were to happen today, I would ask, “How is that going to work, when one 71-year-old listener can’t have the 60,000-mile service done on her Corolla without almost wiping out her savings?”
On the other hand, and in a more positive light, in November the Conference Board’s reading of American consumer confidence hit 107, a number not seen since before the Financial Meltdown. Another key indicator is that, unless new car sales tank completely this month, we may well equal or exceed last year’s record for new car sales in this country. And in just those two sentences I have taken you from the lives of the 49 percent to how the other half lives.
And here the outlook on the real economic world in which we live seems to be completely based on the price of gasoline. Moreover, the Consumer Confidence Survey appears to rise and fall with the price of gasoline, too.
The car market in America hit an all-time sales record in 1973 of 14.57 million. But after the First Energy Crisis, car sales collapsed to 11.1 million vehicles two years later. It would take the price of gas backing off slightly and four years of recovery to get new car sales back to 1979’s 14.1 million. Then came the Second and more brutal Energy Crisis. Sure enough, sales consequently declined for three years in row; Americans bought just 10.5 million vehicles in 1983. We had purchased more new cars in 1965 than we did in 1983. But along came a collapse in oil prices, and car sales started taking off again. By 1986 we topped 16 million for the first time, a feat we wouldn’t duplicate for almost a decade. By the time Desert Storm had oil prices spiking, we were down to purchasing only 12.5 million new cars a year again.
But then a strange coincidence happened on the way to the gas station. From the $40 per barrel price brought on by that Middle East Conflict, oil prices on the regulated commodities markets kept falling throughout the 1990s, until after the Asian Financial Crisis when oil was around $10 a barrel and we were paying 99 cents per gallon for gas. And sure enough, the next year we purchased 17 million new cars for the first time ever.
Then from 2000 to 2008, oil slowly climbed to $147 a barrel, gasoline went from 99 cents to $4 a gallon and, to move any metal at all, automobile manufacturers had to turn to suicidal customer rebates. Then the price of oil actually put us into a new recession in August of 2007, fully 13 months before the financial system collapsed. OK, new car sales fell to 10.4 million vehicles in 2009, or about the number of new cars sold back in 1970. But in terms of turnover time for the national fleet of registered vehicles, it was the worst sales rate ever in automotive industry history.
Then a couple of years ago, you guessed it, oil started collapsing again. This time it dropped from nearly $100 to about $30 a barrel at the lowest point. And, as has happened every time it’s done that in the past, new car sales not only continue to climb, but are setting all-time records again. Maybe two years in a row now.
Nothing affects new car sales more than the price of oil. Certainly interest rates don’t: They were 11 – 13 percent in the Seventies, and subprime interest for great credit existed even as Reagan came into office. But during the Eighties interest rates were often as high as they had been in the previous decade and would drop only slightly. It was only after 9/11/2001 that GM first introduced Zero Percent interest loans to spur sales again; and, since the Financial Meltdown, 2- to 4- percent new car loans aren’t all that unusual. So, those higher interest rates, falling to today’s low rates had no long-term impact on the up and down nature of car sales either.
Some in the media love to write that the advent of 72- and 84-month financing has made more individuals able to afford a new vehicle. But that’s what happens when you write about numbers without asking real people in the business what’s really happening. Those extended terms are not helping people struggling to afford a payment on a new vehicle; they’re allowing them to buy far more car, or more likely more truck or SUV, than they would have purchased in the past. It’s why we buy $69,000 Ford King Ranch F-150s today instead of the much cheaper extended cabs with not many options that we bought 25 years ago. Come to think of it, today you can buy a Ram Lone Star Edition Crew Cab for little more than the list price of a 1993 Chevy Extended Cab. If all that mattered were the price, then that Ram’s value should dictate that every last one in America would already have been snapped up. But that’s not what happened, either.
No, it’s all about the price of oil. That’s why large truck sales are up 7 percent again this year, while large SUV sales are up 20.9 percent; but sales of small, midsized, full-sized and luxury cars are all off this year. Luxury car sales are down nearly 13 percent and full-sized cars are in a full-blown depression, down 45 percent.
Mark my words, that situation will reverse again over the next eight years. Prices for oil and gasoline will rise one more time, and the buying habits of many Americans will shift again. While oil prices rise, new car sales will flatten or decline depending on how fast the price of oil increases. The more oil goes up, the fewer trucks and SUVs will be sold, while sales of Prius hybrid electrics will recover completely.
And then the cycle will reverse again.
Every self-proclaimed genius running the auto industry during periods of truly low gasoline prices becomes a replaceable has-been when oil prices rise. After 43 years of occupying a front-row seat to this country’s automotive industry, I find buying habits and total sales of new cars as predictable as the tides.
Hardly anyone else seems to notice.
© 2016 Ed Wallace
Ed Wallace, a member of the American Historical Association, is a recipient of the Gerald R. Loeb Award for business journalism, conferred by the Anderson School of Business at UCLA. He reviews new cars every Friday morning at 7:15 on Fox Four’s Good Day and hosts the top-rated talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. E-mail: firstname.lastname@example.org