Tag: pandemic

Is the collapse in car sales the canary in the coal mine for the US economy?

May 4, 2020

Trends in car sales are a significant indicator of economic activity in all but some emerging market economies because of their linkage to household confidence and spending. For example, the growth in car sales in China have accompanied that country’s recent economic rise. China recently overtook the US as the world’s largest car market and is on track to overtake the US to become the world’s biggest economy.

Just released data on US car (auto) sales in April makes alarming, but not surprising, reading. Compared to April last year, US auto sales for Toyota were 54% lower, Subaru’s sales were 47% lower, Mazda’s were 44% lower, Hyundai’s were 39% lower and Kia’s 38% lower. Others, notably GM, Ford and Volkswagen, release sales figures quarterly, so their official numbers for April are not available although their sales for the March quarter were down by slightly less than the above-listed manufacturers and forecasts are for sales in May and June to be just as dire as in April.

This begs the questions – are US car sales and prices going down the same path as the US oil market went in April and what does that mean for the US?

Both US auto and oil markets have suffered a sudden drop in consumption and sales because of the responses by businesses, households and (State and Federal) governments to the COVID-19 outbreak in the US. Both have run into storage problems and costs because of the product pipeline, which is more alarming for the car industry because of its ‘just in time’ inventory management. Car (auto) manufacturing has collapsed to a trickle in the US, China, Japan and Europe.

A number of US oil production, drilling, exploration and supplier companies, led by the more vulnerable and leveraged, have folded or are staring down the barrel of bankruptcy. Given the expected drastic contractions in US economic growth, employment, business investment and household spending, I have two questions:
– are car prices in the US (and, by association, the rest of the world) heading down the same path as oil prices?
– are auto manufacturers in the US heading down the same path as companies in the US oil industry?

An affirmative answer to both questions will have severe explicit and implicit implications for households, businesses, governments, economies and future generations in the US and around the world.

US and India – twins by another mother

April 12, 2020

A nation and its people are judged by how the weakest are treated. To quote Pearl S Buck – “the test of a civilisation is the way that it cares for its helpless members.”

COVID-19 has shown itself to be capable of spreading virulently, irrespective of differences in societies and people. It ruthlessly attacks most often where a predisposition or weakness exists, i.e. through genetic, health or social circumstances, which brings into stark relief the similarities and differences between many nations’ healthcare and political systems.

A critical factor in each nation’s response is how its health system treats the poorest, weakest and most socially outcast because a nation’s health system gives an insight into that nation’s sense of equality, justice and fairness, as well as an insight into its social principles, political establishment and economic strength.

The US is the world’s biggest economy and democracy in GDP terms (the definition of which is a topic for another day) and the world’s biggest creditor nation. Yet it has a health system that, in many ways, resembles that of a third world or developing nation. It is a world leader in many areas of healthcare technology, but its healthcare is available only to those with expensive insurance, i.e. the wealthy and middle class. Those at the bottom of the socio-economic scale miss out, as the COVID-19 pandemic is showing. India is the world’s biggest democracy on a population basis and has health and political systems that behave much like that of the US.

The US has a big gap between the very rich and the rest, and between the middle class and those at the bottom of the socio-economic ladder. India is the same.

Religion (Christianity) has a strong hold in the US and yet there is harsh racism directed at lower socioeconomic classes, many of whom are descendants of former slaves. India is the same, with Hinduism and the caste system. Furthermore, both the US and India display an irreligious prejudice to those of the Muslim faith.

US politics, at both Legislative and Executive branches and at federal and state levels, are deeply polarised by seemingly irreparable partisan divisions. At its political head is a populist who exploits public fear and ignorance to build popular support and who revels in the media spotlight. India is the same.

COVID-19 has shown that the US and India have too much bureaucracy and no communication or co-operation between federal and state government levels.

The President of the US wants to move the country towards self-sufficiency in terms of its global political and trade relationships. India is the same.

The US relies on the world’s investors to fund its federal budget deficits and years of profligate government spending. India is similar although the numbers are smaller.

The various arms of the US federal and state governments and its public service have not been united in fighting the COVID-19 pandemic. Consequently, the US now has the greatest number of COVID-19 related deaths, is experiencing an economic fallout that is unfolding at an unprecedented pace and extent and, in many circles, is debating the wisdom of going it alone in a bid to ‘make America great’.

A majority of Americans would be appalled to consider themselves as having more in common with India than with other industrialised nations. India has four times the population of the US in a third of the land mass. Let’s hope that India does not go down the same deadly COVID-19 path as the US.

Leadership needed in this crisis

March 29, 2020

Governments have shown leadership by announcing or implementing strong fiscal measures, many at an unprecedented scale and speed. Almost all nations have shut borders and put arrivals in quarantine but a (brave) few have locked down a city, region or the entire country. Effective strong government leadership, which I define as setting and implementing informed fiscal and public health goals with the compliance of the general population, has generally been achieved through open communication and either imposed (China) or compassionate (New Zealand) leadership.

China is an example of an enforced leadership that imposed drastic measures on a section of its population but openly communicated its actions, progress and results locally and globally. The leadership in New Zealand, on the other hand, showed compassion and openly communicated its reasoning, priorities and actions in response to the coronavirus threat and has earned the respect and co-operation of almost all the population in locking down the entire country.

Both China and New Zealand made mistakes along the way but admitted and learned from those mistakes. Having accepted and openly communicated the strategy of accepting short term pain for long term gain, they made hard decisions and look set to be among those emerging soonest and healthiest from the social, economic and fiscal storm in which the world finds itself. Yet, the leaders of some nations refuse to admit the size of the threat or in some cases, its very existence.

Many countries’ leaders, governments, media and people are still debating what to do or are openly in denial of the inevitable breaching of their border(s) by this unprecedented health and social threat. Most of those nations (both industrialised and emerging) are run by leaders who are no more than poster boys with egos and spin doctors, who think, speak and act out of self-interest and/or for political (or personal) gains and who seek only to reinforce or retain their power. They are leaders of nations in name only. They are not true leaders of their people, which is what the world needs now. They risk their nation and people suffering not only huge health, social and economic damage during and after the coronavirus pandemic but also isolation and loss of international prestige afterwards. One, in particular falls far short of his predecessors’ self-proclaimed title of leader of the free world.

To be a leader in the world, those at the top of the power pyramid in each country must show leadership in their own country, which means that they must seek informed advice to implement social and fiscal policies, and must view and interact with the world with an open mind and an open heart. And they must do it now!