This is issue #055 of the abroaden weekly insights newsletter where we go over how the economy impacts cars and the auto industry.
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What we’re watching
- Crazy car prices
- What it will cost to rent a car this summer
- Green investors stick it to some oil companies
- The grandad of stock indexes celebrates a big birthday.
Why buying cars is getting more expensive.
The pandemic continues to do all sorts of fun things to the global economy.
For one, supply chains are still under lots of pressure as we shifted our habits from entertainment to consumption over the past year.
Second, with tons of demand for electronics, there aren’t enough computer chips
Finally, last year’s temporary lockdowns at the onset of the pandemic threw manufacturers for a loop.
While many industries are feeling the heat, carmakers face a dire situation.
Thanks to the confluence of the above events, auto manufacturers are shutting production lines around the globe.
The impact of fewer new cars available will be far-reaching, especially at this crucial juncture.
Consumers in many parts of the world are emerging from the pandemic.
They’re flush with cash and ready for some life changes.
With not nearly enough cars on the market, the price of getting a new ride will increase substantially.
These demand pressures also spill over to used cars, driving the secondhand market to record highs.
Before you panic-buy a new car, it’s essential to take these developments into perspective.
Global supply chains and consumer consumption are transitioning right now.
Most economists don’t expect these price increases to continue over the medium term since we’ll start spending most of our money going out by the end of the year.
The basic laws of supply and demand will kick in, too.
When that happens, people will stop buying cars since they’ll think they’re too expensive.
In turn, more supply will be on the market, driving down car prices.
It’s easy to think inflation is here to stay, but thinking short-term is a great way to make bad decisions.
Instead, take the current news for what it is, while others around you panic buy.
Rental cars, too
Speaking of cars and the pandemic, the rental car market is in for a rough few months.
This airport mainstay has had it doubly rough during the past 14 months as people stopped traveling.
The car rental business model is an interesting one.
Each year, car rental companies buy new cars, selling the previous year’s fleet to resellers.
They do this fast turnover as the annual maintenance costs far outweigh any benefits of keeping a car over the long term.
Generally, this model works well, even if some firms do better than others.
Last year’s kookiness tossed that model on its head.
As the lockdowns roiled both the economy and the travel industry, car rental companies got battered on two fronts.
First, no travel meant no rental income.
Without rental income, the companies had to borrow more money to fund this year’s car fleet.
To help damage the blow, rental car companies sold many of their cars earlier than usual.
While this firesale gave them cash, it also reduced their supply considerably, and with terrible timing.
The wild predictions about travel never being the same didn’t materialize in 2021.
When the vaccination campaigns started, demand for car rentals shot up, leaving the renters without enough fleet to match demand.
The rental car companies then scrambled to order more cars to be ready for a return to travel this summer.
Unluckily for them, though, the car shortage mentioned above ruined those plans.
The result of all what looks like a perfect storm?
If you’re going to need to rent a car this summer, book it now. Otherwise, you might be paying a dear price for one (if you can find one at all).
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ESG activism goes after big oil (and wins)
The pandemic might be getting all of our attention right now, but there’s still a climate crisis brewing.
It’s no secret that investors are demanding that companies clean up their act if they want money.
First, 61% of Chevron’s investors chose to cut emissions from their product actively.
Considering that Chevron’s business IS emissions, that news is enormous.
Second, a hedge fund with a relatively small stake in Exxon Mobil could get at least two seats on the board.
The fund wanted to challenge the company’s long-term strategy, arguing that it should divest from oil and invest in sustainability.
With their victory, it’s all but assured that Exxon will transform into a much more sustainable conglomerate.
Last week, we got to speak about green investing at the super cool Nest City Lab in Barcelona.
This collaborative space works to find and promote new sustainable ways of living.
During the session, we spoke about how investors of all sizes have the power to force positive changes.
These recent events with Shell, Chevron, and Exxon prove precisely that.
(We have an upcoming guide about green investing for people living abroad. As subscribers to this newsletter, you’ll get an advance free copy from us because you’re fantastic.)
Dow Jones turns 125
At abroaden, we’re big fans of indexes.
We’re such big fans that one of us tried to name our newborn Dow Jones, but the CEO’s wife was having none of it.
(I’ll show myself out)
Indexes are amazing because they can tell you the performance of a sector, theme, market or even the entire economy.
Do you know what we like even better than indexes?
Funds that invest in indexes.
With an index fund like an ETF, you can quickly get market returns with little risk.
Last week, one of the world’s oldest indexes, the Dow Jones Industrial Average (DJIA), turned 125.
The Wall Street Journal has a fantastic write-up on this meter used to measure the performance of the 30 biggest companies in the United States.
Need more proof that stock indexes are the way to invest?
Over its 125 years in existence, the Dow returned an average of 7.69%.
If you invested 1,000 USD at its inception, today you would have (wait for it):
The power of compounding returns is pretty cool, right?
That said, while the OG of stock indexes, there are far better ones to invest your money in, like the S&P 500 or Euro STOXX 300.
Still, happy birthday, Dow!