On the road

As we start the summer driving season, it’s a good time to reflect on the fact that the average U.S. passenger vehicle is a record 11.4 years old, according to Polk.

Part of this is because most cars really are better these days: You can go 100,000 miles without changing spark plugs, and hitting the 100,000 mile mark is now more a sign of middle age rather than utter decrepitude. And if you’re in a major city, you can get by with taxis, Uber and Zipcars.

The other part reason the U.S. auto fleet is so old is that many people still don’t feel secure enough in their jobs to make a major purchase like a new car. Nor do they earn enough. The median family income is about $50,000; a modest new car will set you back $15,000 to $25,000.

President Coolidge shows off his radio-equipped auto.
President Coolidge shows off his radio-equipped auto.

And it’s not entirely the auto industry’s fault that cars are so expensive. In 1970, a Volkwagen Beetle cost $1,874. Adjusted for inflation, that’s $11,427 today. And current starter autos have nice touches like air bags and heat.

Nevertheless, it’s a reasonable bet that car sales will accelerate a bit in coming months, assuming the unemployment rate remains steady and wages tick up a bit. And that, in turn, could be good news for auto stocks. So far this year, automakers are up 8.49%, vs. 3.23% for the Standard and Poor’s 500 stock index. Toyota has gained 9.89% this year, Honda’s up 15.92% and Volkswagen has gained 16%.

The laggards are U.S. automakers. Ford has fallen 0.19% this year, and GM is up 3.9%. Both are dead cheap stocks, however: GM trades for 6.6 times estimated 2015 earnings, and Ford clocks in at 7.6 times earnings. American cars, by and large, are sturdy and well priced. They might finally start to accelerate later in the year, if the economy doesn’t sputter too badly.

3 thoughts on “On the road

  1. John,

    Your articles are always informative and cogent. Today’s article is no exception.

    But I do have a single gripe. Why did you cite the GM and Ford P/ E ratios in such an inverted manner? For those of us who are somewhat mathematically challenged, it caused some unnecessary confusion. Keeping a constant math unit framework would be helpful.

    Thank you for your consistently excellent insights.

    Liked by 1 person

    • I love questions with easy answers. I shouldn’t have used a percentage sign on the PE ratio. This is what happens when you have yourself as a copy editor. Thanks! (I’ve fixed it.)

      Like

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