Tuesday, March 27, 2012

Interest in Cars

How can American businesses be so dumb? Don't they ever pull their head out of their niche to take a look around? Apparently not, which is why so many businesses have allowed their customers to be sweet talked into spending all their money somewhere else.

The latest example: Car manufacturers are bemoaning the fact that young adults have "lost interest" in cars, according to the New York Times. To think that young adults have lost interest in cars is a failure to understand the market. Young adults are spending their money elsewhere not because they have lost interest in cars, but because they have gained interest (payments) on student loans all the while coping with double-digit unemployment rates.

The decline in overall vehicle spending among young adults has been stunning. In 1984 (the earliest data available), householders under age 25 devoted a hefty 24 percent of their expenditures to vehicles and vehicle expenses, according to the Consumer Expenditure Survey. By 2010, the figure had fallen to 16 percent. Spending by young adults on new cars has collapsed. In 2010, the average householder under age 25 spent only $393 on new cars, down from $1,114 in 1984 after adjusting for inflation.

It is no coincidence that the additional dollars the average young adult has had to devote to education (up by $710 between 1984 and 2010, after adjusting for inflation) is almost identical to the dollars they no longer spend on new cars ($721).

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