ACtion Magazine - September/October 2011 - (Page 14)

Leonard’s Law W Keith N. Leonard Esquire Car buyers as economic indicators station wagon, convertible, sports car, a hybrid/electric, a crossover, mini-van, pick-up truck, van, or an SUV (small, medium or large). A recession clearly affects consumer spending. So, should a recession affect the popularity of a particular vehicle, specifically the best-selling car of the year? From 1948 through 1978 (with the exception of 1957, 1970 and 1976), the best selling car in America was the full-size Chevrolet Bel Air/ Impala/ Caprice. The Ford Fairlane (another full-sized car) was in the top-spot in 1957 and the mid-size Oldsmobile Cutlass was the leader in 1976. Thus, during six recessions over the period from 1945 to the present, one type of car was dominant, and its selling power seems to have been unaffected by the economic impact of any of those recessions. The Cutlass was again the best selling car in 1979-1981 the Ford Escort being the leader in 1982. The Chevrolet Cavalier, a direct competitor of the Ford Escort, took over as the best selling car in 1984 and 1985. Another Chevrolet (the Celebrity) was the best seller in 1986, but the Ford Escort returned to the top in 1987 and 1988. With the exception of 1991 (when the Honda Accord was on top), the Ford Taurus became and remained the best selling car from 1989 to 1996. The Honda Accord was again the best seller in 2001, but in every other year from 1997 to 2009, the Toyota Camry was the number one seller in the United States. One thing that can be discerned from the list of best selling cars over the years 1949 to 2009 is a more recent trend toward smaller cars with presumably better gas mileage. So, then maybe the price of gasoline rising over that period of time due to economic impacts of recessions and other factors affects a person’s vehicle choice. One statistic that is used to compare the true cost of certain consumer expenses at different times is an “affordability index”—in this instance the ratio of the average person’s disposable income to the price of gasoline. The higher the gasoline affordability index, the lower the price of gasoline when related to disposable income. At least through July 2008 the gasoline prices of that time (about $4.11 per gallon) were comparable, using the affordability index, to the gas prices of 1960. That is because the increases in the average person’s disposable income were outpacing the increases in the price of gasoline from 1960 to at least August 2008. Thus, it may be the actual price of a gallon of gas, without consideration of the price increases measured against the increases in a person’s income, which leads the potential buyer toward a smaller car. Moreover, the percentage-increase in the average person’s disposable income has declined since August 2008. Added to that is the fact that the average person’s financial obligations (mortgage and consumer loan debts, plus homeowners’ insurance, property taxes and auto lease payments) had reached some 19.5 percent of their disposable income by the third quarter of 2007. One thing emerging from the current recession is the length of time that people are holding onto their vehicles. A recent study by R.L. Polk & Company showed that, since the beginning of this recession, Americans are holding onto their vehicles 14 percent longer than prior to the recession. On average, Americans are keeping their vehicles 63.9 months. In fact, the average length of time that people are holding onto their vehicles is increasing by 3.7 months per year. This certainly suggests that people are less willing to buy that new car during times of economic distress. A joke among economists is that a recession is when your neighbor loses their job and a depression is when you also lose your job. With an unemployment rate of 9.2 percent as of early July, I do not think many people find that joke very funny. Nor do they care about what economists believe is the difference between a recession and a depression. An economic condition by either name just plain stinks.❆ ith the deadline looming, the federal government reached an agreement on the “debt crisis” (as the term for the current events has been popularized by the media); the results of which remain to be seen. The indicators used to measure and predict the American economy show an economy that is still fighting to recover from the current recession. Though there is no universally accepted definition of the term recession, the Business Cycle Dating Committee at the National Bureau of Economic Research (NBER) defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP (gross domestic product), real income, employment, industrial production, and wholesale-retail sales.” A recession occurs when such business activity has reached its peak and has begun to fall, and it does not end until the business activity bottoms out. On average, a recession lasts about ten to twelve months. On the other hand, a depression is an economic downturn where the real GDP declines by more than ten percent. The NBER has calculated that from 1945 to 2001 (the last year in which there was a recession in the United States before the current recession which started in December 2007), there were ten recessions. Those earlier recessions occurred in 1949, 1953, 1958, 1960-61, 1969-70, 1973-75, 1980, 1981-82, 1990-91, and 2001. Other than a purchase of a home or other real estate, the purchase of a new vehicle is one of the largest buys most people will make in their lifetime. Considering that fact, what discernible impact(s) does a recession have on a potential car buyer? There are over 254 million passenger vehicles in the United States. The potential buyer of a vehicle is faced with a wide variety of kinds of vehicles, even before beginning to consider a manufacturer and a model. A shopper can choose a sedan (compact, mid-size or large), a coupe, 14 ACTION • September/October 2011

Table of Contents for the Digital Edition of ACtion Magazine - September/October 2011

ACtion Magazine - September/October 2011
Table of Contents
Expansion Valve
Techncally RELAY-ted
Under The Southern Cross
Leonard’s Law
News & Updates
Virtual View
Cooling Corner
Performance Always Needs More Cooling
ACDelco’s Guidelines for Replacing Engine Coolant
Worldwide Training
New Member Profile: Alex Original, Ltd
Association News
Quick Check
New Products & Services
Last Watch

ACtion Magazine - September/October 2011