Gasoline Prices are Starting to Bite

USA Today is reporting that Resale values tumble on Large SUVs. The reason should be obvious: higher gas prices at the pump. Let's take a look:

SUV and pickup owners - already stung by rising gasoline prices - are paying another penalty when it comes time to trade in or sell: falling resale values for the gas-thirsty vehicles.

The resale values of large SUVs and pickups are slumping in response to a supply glut, higher gasoline prices and lower sales of new SUVs and pickups.

"If the rebate on a Chevy Suburban goes up $1,000 this month, usually the Suburbans sitting out there in our auction lane all of sudden lost maybe $500 worth of value," said Tom Kontos, chief economist at Adesa, a firm that tracks wholesale used vehicle prices.

AutoTrader.com, an online vehicle seller, has 100,000 more SUVs listed in online classified ads today than a year ago, spokeswoman Louise Barr said.

This can not bode well for the lack of innovative new designs at GM and Ford. Yes, GM is reporting record month over month sales increases but from depressed levels and at what cost? If they start cranking out more SUVs who will want them? Are they capable of cranking out anything else that people might want? Even if they can, can GM make a profit on it? How much of these sales bite into future demand as customers are now expecting "employee discounts" everywhere you look?

If that news is not bad enough, on July 25th this announcement came from Paul Krugman at the New York Times: Toyota, Moving Northward.

There has been fierce competition among states hoping to attract a new Toyota assembly plant. Several Southern states reportedly offered financial incentives worth hundreds of millions of dollars.

But last month Toyota decided to put the new plant, which will produce RAV4 mini-S.U.V.'s, in Ontario. Explaining why it passed up financial incentives to choose a U.S. location, the company cited the quality of Ontario's work force.

Is the quality of the US work force that much worse than Canada's or is this all a smokescreen for something else? Since I do not have that much faith in inate Canadian ability vs. the US, I think something else is happening.

This kind of reminds me of the opening lines of
For What It's Worth (a 60's protest song, taking the liberty of changing one word).
There's something happening here
What it is is exactly clear...
At any rate, Krugman nails it with his continuation as follows:

Canada's other big selling point is its national health insurance system, which saves auto manufacturers large sums in benefit payments compared with their costs in the United States.

So what's the impact on taxpayers? In Canada, there's no impact at all: since all Canadians get government-provided health insurance in any case, the additional auto jobs won't increase government spending.

But U.S. taxpayers will suffer, because the general public ends up picking up much of the cost of health care for workers who don't get insurance through their jobs. Some uninsured workers and their families end up on Medicaid. Others end up depending on emergency rooms, which are heavily subsidized by taxpayers.

Funny, isn't it? Pundits tell us that the welfare state is doomed by globalization, that programs like national health insurance have become unsustainable. But Canada's universal health insurance system is handling international competition just fine. It's our own system, which penalizes companies that treat their workers well, that's in trouble.

By the way, it's not just gasoline prices, its gasoline prices, health care prices, education prices, outsourcing, property taxes and numerous other factors. Unless wages improve we are headed for a brutal consumer led deflationary recession. Hint: wages are not going to improve.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/