The last months of motoring

It’s odd watching two conflicting dynamics at work. As an outsider, I follow the slow roll-over of global oil output: peak oil. As an insider, I’m watching a totally oil-dependent industry react to the symptoms of peak oil with no clear idea of what they mean or how soon they will call time on their entire business.

The peak oil dynamic is easily observable if you know where to look. Oil is walking a tightrope between being too expensive for most consumers, in which case consumption falls and with it prices, or being priced below the level that producers – especially frackers – require to break even. That’s a vicious spiral of prices hitting a ceiling, volumes falling and investors pulling the plug on exploration and development. Net result: less motoring.

The auto industry dynamic is at once harder to describe and less easy to discern. Today I got to listen to a smart and well-informed insider talking about a whole bundle of strategies being adopted by car makers, dealers, fleet suppliers and fleets themselves in order to cope with ‘the way the market is going’. Every one of those strategies amounted to concentrating their activities on an ever-shrinking pool of solvent customers. Floundering on the muddy shore of that pool are the stranded former ‘consumers of motoring’ who find themselves priced out of the once-dominant segment of society that regards owning and driving a car as a natural part of the human condition.

Predicting where all this will go -and more importantly how quickly – is a mug’s game. You’d have to have a really good handle on..

  1. international relations (to understand how long the UK will hold in to its relatively privileged status among resource consumers);
  2. domestic politics (to guess at how long the national elites will continue to favour the auto/highways complex and the older generation who’re not thinking of giving up their access to it), and
  3. the antics of central banks, who will ultimately determine how long this dead horse can be flogged.

My guess is three years. That is, the position that the current players get themselves into in three years’ time will determine whether or not they get to play a part in what happens over the ensuing 10 years. It’s a game of musical chairs, with seats for less than half the current crop of players (well, perhaps three quarters of manufacturers, half of leasing companies and one in 10 dealers).

The winners will be drawn from among those who realise over the next couple of years that they’re in the game. Right now, I’d say at least 70% of the players haven’t begun to understand their predicament yet.

Debt junkies pile in again

UK new car registrations hit a decade high in September. So everything is lovely on God’s green Earth and all is well with the Blessing of Material Progress bequeathed by Him unto His favourite experiment creation.

How does that work, you ask. Where are Brits getting the money from to go piling into car showrooms when the rest of the retail world, from mighty Tesco to the humblest corner store, is suffering enforced withdrawal from their spending habits?

The Society of Motor Manufacturers and Traders knows. It says:

“Demand for the new 64-plate has been boosted by intensifying confidence in the UK economy, with consumers attracted by a wide range of exciting, increasingly fuel-efficient, new cars.”

But watch out, children. Whenever you see the word ‘consumer’ you need to know that they mean ‘debt junkie’. The bit about the economy is irrelevant context, or what it is more commonly called ‘balls’. Nor are these consumer debt-magnets especially attracted by ‘exciting’ cars. Half of them couldn’t tell you their new ride’s engine capacity. The deal clincher is availability of finance. And who provides the loans? Well, it is the industry that makes the cars. It’s like getting a special offer on drugs from your local pusher.

Crazy though the banks are, though, they tend to draw the line at throwing money at total deadbeats. So traditional unsecured loans are off the table. Luckily, the Gummint has ways of diverting QE into the hands of zombies when the need arises. Ladies and gentlemen, we give you Payment Protection Insurance pay-outs – neatly gauged to match the average deposit on a new car from your friendly auto finance company (which gets the car back if when the borrower can’t keep up the payments).

But shouldn’t these poor folks be persuaded to do something more useful with the unexpected cash windfall they were cold-called relentlessly into accepting? Like pay off one of their credit cards or reduce their mortgage or pay down some of the kids’ tuition fee loans? Dream on suckers. The best they get is new guidelines from the financial authorities, which go something like this:

  1. Put on serious face
  2. Say: ‘You really can afford this, can’t you.’ (Tip: If you like, you can make it sound like a question)
  3. Point to the dotted line for them to sign on.

Meanwhile, deficits increase in spite of austerity. The NHS totters. The pension funds these mostly late-middle-aged auto buyers count on get shakier by the day. Oil’s insidious death spiral notches down again as falling prices chase decreasing affordability, killing-off investment in high-cost resources like shale and polar formations.

It’s sub prime all over again, tailored to an economy where mere mortals can’t even begin to think about playing the housing market. And it looks like it’ll end the same way as 2007.