November 20, 2021

Horse 2934 - Millennials Killed Cheap Motoring Too, Apparently

I found in Friday's newspaper, a think piece by yet another straight white grey haired man about his experience of going into a motor dealership and finding that the car which he wanted to buy was discontinued and how the nearest equivalent that they had on the showroom floor had a sticker price of more than $80,000. The cut and thrust of the rest of the column was about how millennials have killed the car market and how its their fault for there not being any cheap and fun cars which are available to buy. This was put down to a lack of interest and hard work on the part of millennials and concluded with the flourish that the modern generation was too engrossed in their mobile phones to want to go out and experience going outside and the thrill of driving.

Had this been in the motoring section, then maybe it could have been passed off as a work of satire but as it appeared in the opinion section and devoid of context, then I can only assume that this was not a work of comedy but was in fact, rigidly serious. Of course I immediately have to reflect on the bizarre notion that as someone under the age of 50, I was reading a newspaper because millennials are supposed to have killed journalism as well. 

I do not have a running list of what millennials are supposed to have killed but I bet that it includes home ownership, renting, gardening, live music, restaurants, hard work, the office, cooking, community, comedy, patriotism, history, roasters, coasters, electric toasters, and now the auto industry.

Let me clear something up. Millennials haven't killed everything. Real wages peaked in Q3 1978; which means that Generation X and Y entered the workforce after wages were already on the slide. Generation Z are so far down the economic wages slide that even the idea of full-time employment might seem like a pipe dream. Generation Alpha are still in school and Generation Beta have had the sheer audacity of not even bothering to be born yet. 

If you don't pay people wages, then in general, they don't buy stuff. It is really really hard to buy things with money that you don't have, unless you can wrangle to buy the government into buying things for you; which explains why for fiscal year 2020/21, Australia spent more money on subsidy payments to mining and energy companies than we did to unemployed people and people on disability benefits. The fact that we do not pay young people decent wages any more, expresses itself in home ownership statistics, where we now have entire generations of people being locked out of home ownership for life. 

One of the convenient benefits of the Coronaplague is that the illusion that wage payers pretended to care about their employees was broken open wide enough so that we could see that underneath the silvery foil, what lay inside was as hollow as a chocolate Christmas bunny. 

This is why I find this whole discussion about supply chain issues causing inflation so baffling. Supply chain problems mean that there are fewer goods for sale and that should lead to an increase in prices but at the same time, there hasn't really been a corresponding increase in wages. Some employers are crying crocodile tears that they can find people to work for them but if they took a good hard look at themselves, they would realise that people simply can't even pay the rent on the starvation wages that they so 'generously' hold out. Prospective employees have quite rightly rejected working as little more than modern day indentured slaves. Why bother going back to work for someone if your wages are a pittance? I got my first lesson about this on my first day of proper work, when I was 16. If I was being paid $2.98/hr at the time and it cost $3.20 just to get the bus there (immediately you can tell that I am not a millennial but old), then I'd have to be working for two and a bit hours just for the privilege of going to work. Now as then, you can take your job and restaff it (but only if you're prepared to pay more).

The automakers sell a really expensive product which relies on the fact that people have to have a decent enough wage to be able to afford it. It used to be the case that a motor car was the second most expensive purchase that normal people made in their lifetime. Since we've locked entire generations out of home ownership, it is by default the most expensive purchase, now. The thing to remember though, is that the automakers are a business and as such, run the numbers of what they have sold, what they expect to sell, and how much their input costs will be, to maximise their profits. Businesses go into business to do business. 

Let's strip this down to as simple terms as possible. Let's assume that we are playing basketball. There is a ring around the basket which inside you get 2 points and outside, you get 3. In order to score 6 points, inside the ring you need to hit 3 shots but outside the ring you only need to hit 2. It should therefore follow that if you want to be a champion basketball team, that you should concentrate on improving 3 point shots because you only need to be 67% as good at hitting them for the return on investment. I have no idea who the best basketball teams are but if I was a coach, it makes sense to me that unless you have an all-time great like Michael Jordan who you can get to do 150% of the work of a normal person, then you should just shoot 3s all the time. 

So it is with automakers. The difference between a $20,000 motor car and a $30,000 motor car, only has to be a difference in perception and trim. Provided you can convince the general public that the quality of your goods are worth the extra $10,000 then you've got it made. Rather, you don't actually need to convince that many people; you will only need to convince 67% of the market and you can completely abandon selling $20,000 motor cars.

This is precisely what has happened.

Back in 1997 there were 51,898 cars sold for the month of September. 13,104 of them were under $10,000. That's a full 25% of the market which was being sold to the cheaper end of the market. If we now assume that the imaginary 2022 VJ Holden Commodore would have retailed for $39,990, then the equivalent which would have existed is $20,000. However, of the 31,596 cars sold in September 2021, just 1151 were under $20,000 in on road costs. 

In fact, what used to be the big three automakers in Australia, don't even bother to sell an under $20,000 motor car any more. Ford almost doesn't sell cars any more, with only the Focus and Fiesta left and they only sell the Fiesta ST which chimes in at $32K. Toyota have abandoned the bottom end of the market and a Yaris will now set you back $27K. Holden doesn't exist anymore because General Motors can't even be bothered to sell any right-hand-drive cars in the world. 

There are a handful of automakers who will sell you a car for under $20,000, like the VW Polo, MG 3, Nissan Micra, Mitsubishi Mirage, Kia Picanto, Kia Cerato, Hyundai i20, Skoda Fabia etc. but even they have to realise that there is more money to be made by being lazier and simply raising the prices.

With people generally not being paid anything near like the amount in disposable wages like they used to, the automakers have had to convince people that their jacked up station wagons are cool. The SUVification of everything isn't the result of innovation but of laziness, as the automakers realise that the average age of people buying new motor cars has skyrocketed and that young people who would have bought all of the wee fun cars, no longer exist as a potential sales market. There basically is no real market for a hot hatch except as a legacy piece. There are no warm coupes which were made on the same lines as the hatchbacks any more.

The absolute peak of disposability of young people buying frivolous motor cars happened in 1964. The destruction of 200 million people in two world wars and the power of unions demanding that people weren't being treated so very very badly, suddenly meant that young people had loads of money and the stupidity to burn it. The 1964 Ford Mustang is the only model year to have sold more than a million units worldwide in a calendar year. At a base model price of $1,599 that equates to $14,953. Now admittedly the specification of a motor car has improved vastly in 57 years but the fact remains that Ford knew exactly what they were doing by shifting volume in 1964 and they really don't have to in 2021. The average age of the buyer of the 1964 Mustang was just 23; which says to me that there were hundreds of thousands of 18 and 19 year olds buying new cars. That's simply impossible now.

It didn't help that in 2020 and 2021 there was a global chip shortage which meant that the production of new cars was slowed and halted in some case. That meant that the automakers could afford to be even lazier because as the supply of new cars slowed there was a mismatch in demand, which then sent people into the used car market and because the demand curve for used cars shifted to the right, the equilibrium price generally went upwards. That also had the effect of crowding out younger people who have less money anyway; which will in time have secondary effect of further transforming the market and convincing the automakers to put even less effort into selling cheaper cars to young people.

Millennials haven't killed the car market. In fact, Millennials have never really been allowed to enter it to anywhere near the same degree as generations past. There aren't as many cheap cars any more because the auto makers know that they can afford to do less work for the same result. There really isn't that much difference between a $20,000 Yaris and a $30,000 Yaris except that they only need to sell 67% of them to achieve the same ends and if the young people don't have the money to buy them, then that's okay.

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