Are high gas prices good for the auto industry?

By Duncan Hood - Monday, June 9, 2008 at 5:31 PM - 0 Comments

You wouldn’t think so, what with GM threatening to close down a truck plant in Oshawa and the U.S. auto industry complaining of the worst sales in years. But an article on the Wall Street Journal website (subscription required) says it could turn out to be a blessing in disguise.

Why? Because according to Mike Jackson, chairman and chief executive officer of AutoNation, the biggest car retailer in the States, high gas prices are causing a huge disruption in an industry that was beginning to get a bit staid. While our televisions have become high-tech flat screen marvels and our music players have shrunk to credit card size, we’re still driving cars that work on basically the same combustion engine Henry Ford was using back in 1908.

Jackson notes that rising gas prices may force car companies to stop trying to sell cars based on power and prestige, and focus more on new technology and true innovation. I think he’s right. If our cars start evolving quickly in fundamental ways, as they transition to totally new technologies such as fuel cells, it could be great for the industry. Not only will it make cars much more exciting, but if they evolve quickly, it means they’ll become obsolete quickly, just like computers and iPods. 

If I were an executive at GM, the thought that consumers might start upgrading their cars every three years to get the latest fuel-saving technology would have me drooling in anticipation.

Worse than the Great Depression

By Duncan Hood - Tuesday, June 3, 2008 at 6:40 PM - 0 Comments

According to the Economist, after inflation is taken into account, U.S. home prices have fallen by 18% over the past year. That’s worse than the 10.5% drop during 1932, the worst year of the Great Depression.

Here in Canada, we live in a different world. Here, home prices can keep going up forever, right?

Maybe not. The latest Scotia Economics report on real estate trends concludes that “After many false calls, there is now convincing evidence that Canada’s housing market has come off the boil.”

The report points out that we’ve actually already seen house prices fall in Canada—though you may have missed it. After inflation, the average resale home price in Canada actually went down by almost 1.5% first quarter 2008 over first quarter 2007. 

Not many people are expecting that trend to continue for the year, but who knows? Not many people were predicting an 18% decline in U.S. home prices at their peak either. 

Financial documents you can understand? That's progress.

By Duncan Hood - Monday, June 2, 2008 at 1:02 PM - 0 Comments

Say what you want about finance minister Jim Flaherty, but the guy has done more to protect individual investors than any politician in recent memory. His latest move was to force the issuers of Principal Protected Notes to reveal critical information, such as fees, “in clear and simple language and in a manner that’s not misleading.” 

It’s about time. I’ve actually tried to read through the information statements that come with PPNs, and trust me, they are impossible to understand. I once called up Glorianne Stromberg, a former commissioner at the Ontario Securities Commission, and she said she couldn’t understand them either.

For too long the financial industry has hidden key information in the middle of hundred-page documents filled with legalease and opaque mumbo-jumbo, safe in the knowledge that no regular mortal could possibly make their way through such dense documents to unearth simple, crucial facts. Things like: ‘how much am I paying you for this thing anyway?’

PPNs are investments which guarantee you won’t lose your money, but then they tend to load on the fees to the point where you can’t expect much of a return either. So forcing the issuers to state the fees plainly is a big deal.

Next it would be nice they forced mutual fund companies to clearly and regularly communicate key info that investors might be interested in. Like whether you’re actually making or losing money. I still find it hard to believe that many fund statement still don’t even let you know your annual rate of return is.