Monday, February 23, 2009

Relevant Recession metrics

One could make quite a fortune by understanding and utilizing the right metrics that would indicate when the US economy has finally reached bottom, the moment in time when it would show again some decent growth numbers. I have a suspicion that we don’t consider the right metrics that we need to follow (beyond Consumer Confidence and other long established indicators) to understand this turning point. Consumers have fundamentally changed their consumption behavior, therefore the underlying metrics need to be adjusted, too. 

Let’s take car sales. We always assume that US car sales have to reach sooner than later a positive upswing. Currently people don’t buy too many cars anymore but they will buy again after their cars are getting older and less reliable. In 2006 (the best car sales year ever) almost 17 million cars were sold in the US, last year it was much lower, this year will be even worse. So, we are all waiting for the sales curve to move upwards again. Why? Because we expect the future to behave like the past, at least sometime in the future.  

But when we look at an interesting metric from Japan, we might realize that we are looking at the wrong thing. Yesterday New York Times writes in article about the mentality changes of Japanes consumers:

“A survey last year by the business daily Nikkei found that only 25 percent of Japanese men in their 20s wanted a car, down from 48 percent in 2000.”

This means that no one in Japan expects that the annual car sales will ever reach again the good numbers from a few years ago. It is irrelevant to look at total car sales from the past but it is more important to understand consumers’ intent in today’s world. 

We should probably spend more time and energy to truly understand consumer intent metrics and compare them over time. It’s easier for a consumer to report his intent (despite all the bias of self reported data) in a particular category than an overall judgment of confidence in the economy of his personal situation. I am curious if any research company looked at “New car purchase intent” behavior by age group over the last 10 years and was able to correlate it to actual sales figures. 


Anonymous Scott Johnson said...

Tap the brake, Herr Fassnacht. While your point is sound as an abstract idea, I think it is flawed when in comes to the automotive market specifically. Out in the great wide open--i.e., in most of America--not having a car simply isn't an option. You can live in densely populated places like Japan or Chicago without a car. Corsicana, Texas--not so much.
I don't expect car sales to rebound quickly, but it won't be because people will be abandoning the idea of car ownership. It will be because people will fix the ones they already have rather than purchasing new ones. With luck we will not have to pursue this strategy for as long as the people of Cuba have had to.

6:27 PM  
Blogger Michael Fassnacht said...

Dr. Johnson,

Always good to hear your thoughts. Please take a look at the latest car sales projections for 2009: best case scenario 11 Million in the US. Even GM's rather positive restructuring plan does not expect more than 13Million car sales in 2014, still 5 Million car sales short from the best sales year 2000.

I think the only way that car sales can again increase significantly and go beyond the 18Million number is through a significant population growth in the US, similar to what happen in the last 20 years (the population grew by approx. 30%). But the number of cars owned per household might have reached its peak.

7:45 PM  
Anonymous Bell said...

Its true that looking the trend alone just won't help. The trend too would change and this could be due to change in behavior of the consumers(which could be due to various reasons), the economic scenario (like the current economic scenario), etc.,

2:14 AM  
Anonymous Steve said...

Understanding the customers' demand in terms of products offering will help large auto companies to offer better products in future. Hence companies which can understand their customers can provide better products and stay ahead in terms of competitive advantage.

8:44 PM  
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