There is no limit to my desire to get an early and accurate read on the U.S. economy, which at the end of the day is what dictates the future returns on our investments. I flew over one of my favorite leading economic indicators only last week.
Honda (HMC) and Nissan (NSANY) import millions of cars each year through their Benicia, California, facilities, where they are loaded onto hundreds of rail cars for shipment to points inland as far as Chicago.
In 2009, when the U.S. car market shrank to an annualized 8.5 million units, I flew over the site and it was choked with thousands of cars parked bumper to bumper in their white plastic wrappings, rusting in the blazing sun and bereft of buyers. Then, “cash for clunkers” hit (remember that?). The lots were emptied in a matter of weeks, with mile-long trains lumbering inland, only stopping to add extra engines to get over the High Sierras at Donner Pass. The stock market took off like a rocket, with the auto companies leading.
I flew over the site last weekend, and guess what? The lots are full again. U.S. Auto Sales peaked in October 2017 when they fell just short of a 19 million annualized rate. As of the end of April this year they had fallen to a 17.53 million annualized rate. This past May looked worse still. And this is what I’m worried about. Auto sales may not only be peaking for this economic cycle. They may be peaking for all time.
This is my logic. As they slowly age, Millennials are about to become the principal buyers of automobiles. The problem is that Millennials are purchasing cars at a far slower rate than previous generations. This is because they have a much higher concentration in urban areas where the cost of car ownership is the most expensive in history. $40 for parking for an evening? Give me a break. But good luck finding free on-street parking, and if you do your windows will probably get smashed.
In cities such as San Francisco, public transportation, bicycles, and electric scooters are the preferred mode of transportation. It doesn’t help that this generation is shouldering the burden of the bulk of $1.5 trillion in student loan debt. When you owe $2,000 a month in interest, there is little room for a car payment, and you probably don’t have the credit rating to buy a car anyway.
