What Could Happen to the Auto Industry during Deflation? Edmunds' AutoObserver.com Explores
SANTA MONICA, Calif. — August 26, 2010 — What would deflation — which is a general decline of economic demand, prices and wages — mean for the auto industry?
"Deflation is rearing its ugly head, now menacing the economy at large, and already has a strong hold on major sectors such as housing. But a tangible broad-scale appearance of deflation in the U.S. economy could prove a mixed blessing for the American automotive industry," reported Edmunds' AutoObserver.com contributor Dale Buss in "Ugly or Not, Deflation Rears Head at Auto Industry" at http://www.autoobserver.com/2010/08/ugly-or-not-deflation-rears-head-at-auto-industry.html.
One direct result of deflation is that the value of consumers' assets declines, and the relative burden of their existing debt increases — both of which make them less creditworthy and decrease their purchasing power.
Interestingly, new vehicles have comprised a pocket of deflation in the U.S. for several years now. In July 2002, the average True Market Value® price of a typically equipped vehicle in the U.S. was $25,430; the TMV® price rose to $29,315 in July of this year. But adjusting the 2002 price for inflation, the same vehicle in 2010 should have cost $30,817 in real terms. That means deflation in auto pricing over the last eight years has saved each American an average of $1,502 on the millions of vehicles they've purchased.
"We recognize that tracking TMV® prices minimizes the extent to which deflation is occurring in the auto industry because it doesn't take into account that today's cars have a myriad of features that did not exist in earlier years. If you look at what you get today, even on an entry level vehicle, it's a staggering amount of value. Vehicles, like computers, just keep getting more advanced for an increasingly better price," said Jeremy Anwyl, CEO of Edmunds.com, who explores this further on his blog at http://justtoclarify.typepad.com.
About Edmunds.com, Inc. (http://www.edmunds.com/about/)
Edmunds.com Inc. publishes four Web sites that empower, engage and educate automotive consumers, enthusiasts and insiders. Edmunds.com, the premier online resource for automotive information, launched in 1995 as the first automotive information Web site. Its mobile site, accessible from any smartphone at www.edmunds.com, makes car pricing and other research tools available for car shoppers at dealerships and otherwise on the go. InsideLine.com is the most-read automotive enthusiast Web site. Its mobile site, accessible from any smartphone at www.insideline.com, features the wireless Web's highest quality car photos and videos. CarSpace is the most established automotive social networking Web site. AutoObserver.com provides insightful automotive industry commentary and analysis. Edmunds.com Inc. is headquartered in Santa Monica, California, and maintains a satellite office in suburban Detroit. Follow Edmunds.com on Twitter@edmunds and fan Edmunds.com on Facebook at http://www.facebook.com/edmunds.