How Auto Sales Could Slow Further

In the discussion surrounding the release of auto sales reports last week, I saw a surprising degree of denial about the changing role of cars and trucks.

The United States’ average vehicle age set another new record high. Soon, the conventional thinking goes, the age of vehicles will force owners to buy replacements, and then, new auto sales will return to familiar levels.

But that doesn’t have to happen. First, the long-term trend toward longer vehicle life isn’t about to make a U-turn. Vehicles will continue to last longer. Second, it is only the owners of vehicles at the end of their useful service lives that face any pressure to replace. That isn’t nearly enough vehicles to lead to a detectable surge in sales. Third, the replacement vehicles don’t have to be new vehicles. If someone is ready to scrap a 1986 pickup truck, a replacement from the 1998 model year might seem new by comparison, but it doesn’t actually count as a new vehicle sold. And finally, it is only when business is booming that the hassles of maintaining old equipment get on managers’ nerves. When business is slow, there is more than enough time to get the latest repairs and maintenance scheduled. The worry is not about how much time it will take, but about how much it may cost — a focus that rarely favors scrapping a vehicle. The number of places where business is booming is, again, not enough to create a boom in sales of equipment in general, or automobiles in particular.

Automobiles’ replacement cycles may be changing faster right now because of financial stress, but that doesn’t mean the economy will improve and those changes will reverse. When people learn a new, more efficient way of doing something, they often stick to it even after circumstances offer them more choices.

Polypropylene: Lighter Weight, Lower Fuel Costs

Polypropylene is becoming more popular as a basic material for manufactured products such as bottles where fuel costs are an important part of the total cost. A juice bottle made with polypropylene might cost more than one made with polyethylene, but it weighs less, and for a product like orange juice that might cross half a continent to get from the factory to the end user, the fuel savings are enough for a product designer or an accountant to care about.

Cars also travel long distances, and Ford is using polypropylene, blended with the plant fiber kenaf, to make the new Escape lighter. The interior part of the door is 25 percent lighter with the new design, improving the fuel economy ever so slightly. With transportation costs rising, we are likely to be seeing more polypropylene in our daily lives.

This Week in Bank Failures

With so much speculation surrounding Greece, it may actually be Iran that is on the verge of not being able to pay its foreign debts. That is a worry, at least, of two nearby countries, which yesterday placed new restrictions on trade loans to Iran. Bank regulators in United Arab Emirates in Qatar have been keeping a close watch on Iran’s financial condition and now have ordered their banks not to issue letters of credit for trade with Iran. This is a substantial blow to the mercantile sectors of these countries, so regulators wouldn’t take this step unless there was real worry about Iran paying its bills. Iran’s economy has been in perilous shape for five years, hobbled by government corruption and the declining influence of oil.

New York State today sued three banks, claiming that the back-room system used by many banks for mortgage transfers is operating outside the law. The state is seeking $5,000 in damages for each erroneous court filing, forfeiture of profits, and other penalties.

Bowing to public pressure, Sallie Mae says it will stop charging the $50 fee it currently assesses its student loan customers for every quarter in which they are unemployed. The public interest campaign against Sallie Mae’s unemployment fee was modeled after the campaign against Bank of America’s announced debit card activity fee, which that bank called off three months ago after a flood of customer complaints.

Freddie Mac’s trading department holds derivatives based on mortgage interest. Freddie Mac is said to hold $3 billion of these securities, which could become worthless if homeowners are able to refinance. It represents a striking conflict of interest for Freddie Mac, which stands to lose a fortune in its derivatives trading if it approves large numbers of replacement mortgage loans. The disclosure of this practice, which has been going on for years, has prompted new calls to have the unprofitable government-owned mortgage securities firm shut down.

Beef Compared to Shrimp

As the price of beef creeps up, it is seen less as an everyday food and more as a luxury or specialty food. I saw another sign of this in a restaurant buffet today. Compared to two years ago, the restaurant has reduced its use of beef by half. It is in fewer recipes and is sliced thinner when it is used. At this restaurant, the same thing is happening, though to a lesser extent, with fish.

The transition is easiest to see by comparing these food ingredients to shrimp. The role of shrimp in the buffet has not changed, but now, beef is used at least as sparingly as shrimp. Fish, which used to be as common as shrimp, is now only a single item on the buffet.

Watching a Century Take Shape

The 21st century will not be remembered for bigger and better internal combustion engines, nuclear power plants, or universities, not any more than the 20th century is noted for its advances in coal-burning trains, plantations, and razor blades. Those are things that seemed especially important at the beginning of the century but were not so impressive a few decades later. The defining qualities of this century are slow to take shape and perhaps not so easy to recognize at this point. Perhaps, for example, the Internet and electrical storage are two of them, but the technology changes so unpredictably it seems too early to say. The reason to try to get an early fix on which innovations matter and which ones don’t is so we can stop investing in things that won’t matter or aren’t what they seem to be. But the last eleven years have already given us reason enough to doubt our ability to predict.