Lets talk economy!

[NoHonor937]

I’m currently in an macroeconomics class and car sales area good market thing to discuss in them so I thought I would just throw something out to see what you guys think. Do you think sedan/coupe or smaller car sales are declining because of gas prices or other factors? Obviously their are 5 factors of demand but I’ll go with income on this one. Go.

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[rraayy3]

Unemployment is low/fundamentals are good/stock market doing well overall (I'm aware 2018 sucked, if you didnt panic and sell, you're fine.) = people have money.

1. some people are stupid with money. rather than save more and live the same, they increase expenses with more money. more "disposable" income = bigger, fancier, more expensive car.
2. gas prices decline - the same stupid people don't save the difference, they buy the bigger/more expensive gas guzzler and flush more money down the drain by filling it up.
3. lots of people equate the bigger/SUV type vehicle as "Safer", ignoring smaller cars and their 5-star safety ratings.

while there may be more industry specific variables, it comes down to nothing more than basic human behavior. most with more money spend more money, taking on car loans/mortgages/etc. that they can't actually afford - even though they can technically make the monthly payment, living paycheck to paycheck.

example: i have family members who are more concerned with "keeping up with the Jones'" and drive "luxury" cars ... literally flushing money down the toilet with an inflated monthly lease payment and nothing to show for it. I make as much/more than them, and yet I drive the Honda - because I'd rather have money than look like I do. Also, the 2018 Hatch Sport is a beautiful car - with a different emblem this car would be 30K+.

 

[MGZ]

I think it's mostly a change in taste and preferences by consumers. Income might be decreasing relative to inflation but given plenty of people still are purchasing new SUVs and crossovers, I don't think that's the main cause.

I also think there is a greater number of viable substitutes, as the price of a new sedan/coupe may be equivalent to a nicer used car. For example, instead of buying a new Kia Rio for ~$16k, someone may opt to purchase a 2013 BMW 5 series.

 

[rraayy3]

I think it's mostly a change in taste and preferences by consumers. Income might be decreasing relative to inflation but given plenty of people still are purchasing new SUVs and crossovers, I don't think that's the main cause.

I also think there is a greater number of viable substitutes, as the price of a new sedan/coupe may be equivalent to a nicer used car. For example, instead of buying a new Kia Rio for ~$16k, someone may opt to purchase a 2013 BMW 5 series.

also this. People would rather be seen in the BMW than the Kia ... even though that 6 year old BMW is a terrible purchase (financially speaking)

 

[Hondaman_MI]

People with families want room and the safety of a bigger/heavier vehicle. The economy is doing well, and gas prices are low, so consumers have the means. It's probably those two factors hurting car sales. A large SUV/truck doesn't guarantee you won't die in a crash, there's so many factors. If it's a head on crash over 55mph your at high risk for severe injury/death, regardless of what you own. But, the heavier the vehicle the safer it is. Same trend with homes. Small starter homes were once more popular, now we see a lot of "Mcmansions".

 

[racer]

Americans don't like small cars.. and when they do, its cause they think they can save a few bucks at the pump. I recall lots of folks ditching their "gas guzzlers" for small cars.. only to ditch those small cars once fuel prices dropped. A foolish game, imho, because the cost of the new small car was significantly more than the gas price change. Leading to #2, people are stupid, and self motivated, and they like shiny new toys. Luckily you can finance them over 84 months nowadays. if you need to make the "payment" work. Ugh.

 

[NoHonor937]

Unemployment is low/fundamentals are good/stock market doing well overall (I'm aware 2018 sucked, if you didnt panic and sell, you're fine.) = people have money.

1. some people are stupid with money. rather than save more and live the same, they increase expenses with more money. more "disposable" income = bigger, fancier, more expensive car.
2. gas prices decline - the same stupid people don't save the difference, they buy the bigger/more expensive gas guzzler and flush more money down the drain by filling it up.
3. lots of people equate the bigger/SUV type vehicle as "Safer", ignoring smaller cars and their 5-star safety ratings.

while there may be more industry specific variables, it comes down to nothing more than basic human behavior. most with more money spend more money, taking on car loans/mortgages/etc. that they can't actually afford - even though they can technically make the monthly payment, living paycheck to paycheck.

example: i have family members who are more concerned with "keeping up with the Jones'" and drive "luxury" cars ... literally flushing money down the toilet with an inflated monthly lease payment and nothing to show for it. I make as much/more than them, and yet I drive the Honda - because I'd rather have money than look like I do. Also, the 2018 Hatch Sport is a beautiful car - with a different emblem this car would be 30K+.

I agree on the branding causing the pricing but in a producers mindset it would also be caused by the cost of making the car. So the lower price tag compared to a normal/equivalent good...corolla/optima would also reflect that price tag. Plus I feel as though the consumer/American mindset is to want to buy a Chevy or Ford because it’s American when regardless of which brand you buy you still stimulate the economy. Your example would be consumer preferance and taste determinant if demand rather than income. If people buy cars out of their affordability than income would have no determination. You could also look at price of other goods. Maybe someone who shopped a Kia or Toyota can chime in as only looked at a lease on a model optima ex(yeah they use the same trim names) and it barely had any of the features that hondas had and they wanted 25k for it. So I scrapped Kia and looked at civics. I think consumer tastes has a large large factor in what kind of cars overall people buy.

 

[rraayy3]

Consumer taste + terrible decision making / poor money management = more car than you need

or

I’m rich so I’ll buy whatever I want

 

[kg4fxg]

If you Google you will find people are keeping cars longer. Why? Millions of answers. Me? No healthcare, or going form a nice deductible to HSA. Basically no healthcare high deductible in the US. Only a problem if you need to see the doctor as say you have meds to renew. I take none. But a doctor visit is now about $100. HSA, well it kicks in if you spend say 5K. Otherwise, you are on your own. I would link it to that fact.

Then you hear on the news most only have $500 in savings. Government shutdown what are people to do? People have too much debt. Past mortgage crisis. Buy more than they can afford. But then this is my area as a CPA. And why I bought a Civic when all my colleagues drive expensive cars. You need to get rid of debt. Own your house. No credit card debt. And then build savings for retirement. You can't do that with credit card debt. So many factors can eliminate your savings. And that reduces you opportunity to buy a new or used car.

I really think the healthcare is the big issue here. It will catch you off guard in no time. Hardly anyone has a $20 co-pay. And if you do I hate to think what they take out of your paycheck. Yikes! We all get sick from time to time.

 

[Civics4Ever]

Healthcare is a joke in this country. Even if you have insurance. It's simple, don't get sick.

 

[87elco]

Us economics? Shit on the middle class

 

[jred721]

Its simple human psychology. Our brains associate bigger with safer and more secure, hence SUV's are regarded as such. Higher is associated with "powerful" in our brains as well, which is another reason why people choose SUV's over sedans. Also, the reason that Americans are so infatuated with SUV's is because they CAN be. Gas is dirt cheap over here compared to Europe, UK, and Asia. Also, the roads here are wide and huge while european and asian roads are generally smaller.

For them, SUV's simply don't make sense for most people. Whereas here, we have the luxury of being able to drive bigger cars. I can bet my last dollar that if Europe were like America with dirt cheap gas with big and wide roads with loads of space, SUV's would be just as popular there as they are here. Add in our relatively good economy where people have cash to burn and it is pretty easy to see why people love their SUV's. Enthusiasts and people who like driving however are in the minority because things like handling, driving feel and sportiness just do not appeal to the common man. We are in the minority compared to the rest of the market.

 

[NoHonor937]

Its simple human psychology. Our brains associate bigger with safer and more secure, hence SUV's are regarded as such. Higher is associated with "powerful" in our brains as well, which is another reason why people choose SUV's over sedans. Also, the reason that Americans are so infatuated with SUV's is because they CAN be. Gas is dirt cheap over here compared to Europe, UK, and Asia. Also, the roads here are wide and huge while european and asian roads are generally smaller.

For them, SUV's simply don't make sense for most people. Whereas here, we have the luxury of being able to drive bigger cars. I can bet my last dollar that if Europe were like America with dirt cheap gas with big and wide roads with loads of space, SUV's would be just as popular there as they are here. Add in our relatively good economy where people have cash to burn and it is pretty easy to see why people love their SUV's. Enthusiasts and people who like driving however are in the minority because things like handling, driving feel and sportiness just do not appeal to the common man. We are in the minority compared to the rest of the market.

Taste and preference seem to be king here. So is income not an actual determinant of demand in car sales?

 

[jred721]

Taste and preference seem to be king here. So is income not an actual determinant of demand in car sales?

Income also plays a decent part in the SUV boom. On average, SUV's are more expensive than sedans. So when you combine all of the factors I mentioned with the fact that people have cash to burn in this current economy, it results in the SUV boom that we are seeing. In a nutshell, our incomes are allowing us to be in a position where taste and preference reign over things like economy and saving money.

 

[rraayy3]

Taste and preference seem to be king here. So is income not an actual determinant of demand in car sales?

Income to a certain extent matters - but leasing has made driving pretty much any car “affordable”

I drove a luxury car after getting my first job out of college. Absolute waste of money. I literally make 4x as much now as I did then - and yet, I bought a Honda (the “cheapest” car I’ve ever driven) because in the end it is something to go from A to B (and have a little fun along the way)

I’ll let others drive around in the BMWs they can’t actually afford to impress people who shouldn’t actually care what car you drive.

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