Unexpected but inevitable pops

What if every product category, every business, is a bubble — and some just last longer?

We know the newspaper business was a bubble. It lasted over a century, but here we are, at the end of it. Papers will still be around, for the same reason that railroads and mainframe computers are still around. But they’ll never be what they were in their golden decades.

Television will follow. That golden age is coming to an end as well. Same with radio. These will also persist, in somewhat different forms. But the golden age is over.

I’m thinking now that we’re seeing the same thing with cars.

A few days ago I took in my old Volkswagen Passat to get the water pump replaced. Turns out lots of other stuff was worn out or broken and needed fixing too. The final bill came to around $5000, which is what I paid for the thing three years ago.

For a minute I thought about getting a new car. They’re cheaper than ever, with lots of good deals, and guarantees that would relieve me of the need to pay much for upkeep. But I decided to fix the old car instead, becuase it’s good enough. Spending $5k is better than spending $20k, especially if I don’t have to borrow the difference.

The mechanic told me his business is booming. Most car owners have awakened to the fact that cars are cars, and most of what we do with them is just drive from place to place. New cars purchases are impelled mostly by advertising and fantasy. Drive a lot of rental cars and you get hip to the obvious: the differences between cars, especially fairly new ones, isn’t large. After a few years they all plateau at a certain level of partial suckage and stay that way for the duration. You forget the quiet cabin and tight handling that turned you on in the first place. You care less about its color than just being able to find it in the parking lot. You know the noise in the heater is some rocks your kid put down the vents and won’t ever get fixed.

Now, what happens if an absence of new car fantasy prevails for the duration? What if the whole automobile business has jumped the shark, and the problem isn’t just Detroit’s?

Even if it hasn’t now, the business will falter eventually. They all do. Disruptions happen. Trees do not grow to the sky. That’s Nature’s nature, in business as well as the wilderness.

Bonus link.

13 comments

  1. Mike Warot’s avatar

    Farming isn’t a bubble, there will always be a demand for food.

    This leads to the interesting idea that perhaps it’s not the business, but the mode of doing something that is subject to a bubble.

    For instance, food grown by huge corporations is a bubble, fed by the bubble in cheap fossil fuels. Someone will be planting crops, tending them, and harvesting the results, it’s the bedrock of Civilization. For our sakes, I hope Civilization isn’t a bubble!

    Just as there was a peak in S100 Computers, Dial Up Modems, BBS, DOS, etc… there will be new forms of computer that rise to the top, then get supplanted by other options.

    Yes, the idea of each of us getting a new car every few years is fiscally irresponsible, and Henry Ford really didn’t want to push it, as it depended on debt financing, which he equated to usury. The peak for that is probably past us.

    In summary (after I wandered quite a bit), the specifics of an idea can get arranged into something that peaks, but the overall ideas never really go away.

    Newspapers will go away, but the need for editors is eternal.

    The big 3 networks will go away, youtube will eventually as well, but the use of moving images to tell stories will always be with us.

    The same is true of the need to get from point A to point B… there will always be means of conveyance, but the future will probably be far more efficient.

    The specifics peak, the overall themes don’t.

    Wow… I really wandered around this time. I need an editor.

  2. Don Marti’s avatar

    How old is this VW of yours? For $5000 you could get a decent “new used” car, probably with less soon-to-break stuff creeping up on it. Of course the whole strategy of buying 3-5 year old cars with plenty of wear left on them depends on someone spending the 20 grand, so maybe I should keep my mouth shut.

  3. Doc Searls’s avatar

    Don, it’s a 2000 Passat wagon with an automatic and a 2.0 4-cylinder turbo engine.

    It has new tires, suspension, steering, brakes, radiator, water pump, headlights, hoses, wiring harnesses, radio, dashboard lights…. and runs very well now.

    And I think we’ve gotten ahead of most of the soon-to-break stuff.

    But we’ll see. Volkswagen, like Mercedes, has this strange ability to make really great, well-built cars that ironically need a lot of work. Not all of them. But plenty enough.

    The Passat is a great car. It’s quiet, comfortable, and handles extremely well. It’s a pleasure to drive both around town and on long trips. And as a wagon it holds a lot of stuff when we need to haul crap.

    I’ve bought a lot of used cars over the years. They all need work. This one is no exception, except that I’m the guy who’s used it for the last 3 of its 9 years.

  4. Christmas in Japan’s avatar

    Recently in Japan it has been revealed that there is now a decline in highway tolls and the number of cars on all roads overall has gone down. Additionally, young Japanese adults are not purchasing automobiles as much as they used to and, instead, are moving to major metropolitan areas and riding trains. Yes, indeed, the auto bubble is starting to pop.

  5. Dan Thornton’s avatar

    I’m a huge fan of cars and motorcycles, and find it hard to reconcile my love of the petrol engine with my desire to make an ecological difference – but there’s definitely what I heard described as the ‘new sobriety’ – people looking for longer utility from their purchases during financial hardship, and looking to spend slightly more initially to get something which will be better value in the long run.

    That’s one reason why the perception of Japanese and German cars will be a benefit at the moment – I’ve put huge mileages on Japanese cars in the past and found them amazingly good – and my current slightly impractical transport is a 15 year old convertible Nissan.

    And Mike’s post is really interesting, and one I think I can agree with – the essentials – e.g. food, shelter, undertakers, heating, transportation etc will always remain, but the approach taken at various times is the bubble element, whether that’s buying rather than renting, or using solar panels etc to generate heating and power ‘off the grid’.

    I’ve long believed that the principles and skills of editors and journalists will remain, but newspapers and newsgathering will change, and it’s being reinforced with every new development.

  6. Jckb98’s avatar

    I want to see what your definition of a bubble is, and I want to compare it to mine.

    My view on what a bubble is, is that it is when the growth of users or consumption of a service or goods gets beyond the normal rate of growth.

    When you say the Newspaper is a bubble, I disagree with the usage of bubble.

    If you pointed out that in the 70s and 80s of the increasing number of NEWSPAPER PRODUCT PROVIDERS as a bubble, then I’d agree.

    But if saying we are replacing PAPER MEDIUM with another medium and the lower usage of paper medium is a sign of a collapsing bubble, then I don’t agree about that at all.

    That is a technological change. A creative destruction. It’s not speculation (abnormal growth). The increased and decreased use of a medium is not a usage bubble. It’s not even a bubble.

    The housing bubble was a bubble because people who cannot afford a home bought and got a home, and those who did not need more than 1 home got more than 1 home. Those extra homes are abnormal growth agents, and therefore the growth of the housing market became a housing bubble.

    In terms of Automobile? I am still trying to figure out if it is a bubble in terms of the transportation context.

    And by the way, I export auto parts. A water pump from a good Chinese factory cost about $20 USD wholesale price maximum in the United States. Unless you are getting imported parts from Europe for your VW, otherwise, having all the parts from Aftermarket sources still can’t come close to 5k, unless you have expensive labour costs at the mechanics which I’m sure if you haggle, you can get a good discount.

    Their profit margin is H U G E.

  7. Chip’s avatar

    Doc
    Throwing down a few thoughts

    1) Food – it’s been a core investment for me (private investments, not traded equities) for a couple of decades.
    a) people eat
    b) despite economic downturns, they spend less of their budget on calories every year, so tend to spend more per calorie (therefore investments in gourmet/speciality foods)
    c) tied to fuel costs – current focus is on “local food” … following a trend

    2) bubbles –
    a) we still have trains, the most efficient mode of surface transport (other than water).
    b) Some newspapers will morph, but are having a hard time. The model is to move newsprint carrying advertising. But you know this one better than most
    c) same for other modes of communication, it’s fun to watch the transistions

    3) Cars and the like
    Grew up with gasoline in my veins, old hot rodder, still a motorcyclists etc. Hydrocarbons are and will stay with us (I have my posting on Long Bets), but having just put $470 in my 15yr old Caddilac (STS/Northstar) which is $30 below my annual mental limit, I’m happy with it.

    Agree with you on German cars – and mechanics
    I’ve had over 1/2 dozen Honda’s, happy with them, several GM products – niggly things break, but powertrains last forever.
    Tires, brakes etc are considered “consumables” – suspension, steering, radiator, water pump, headlights, hoses, wiring harnesses, radio, dashboard lights …those I wonder about, should be at least 100,000 mile items.

    Only “new” car in last decade was used Honda S2000.
    Last “new” motorcycle was mid-80′s
    Good used is cheaper and greener than new.

    Happy Thanksgiving to you and yours

  8. Ephraim Schwartz’s avatar

    Thanks for your blog. It allowed me to see a bit more clearly. You’re absolutely right of course, especially about cars.

    There was a time when just getting in the car for a Sunday drive was enough. I don’t know many people who do that anymore.

    Even as late as the 70s and perhaps the 80s we all waited to see what the new cars would look like with major redesigns from Detroit coming every other year.

    There was a whole culture around cars that is fading.

    Most professional sales people have witnessed this phenomenon for years because they understand that over time everything becomes a commodity.

    Ephraim

  9. Don Marti’s avatar

    Doc, yes, I test-drove a Passat when I got my Golf (2002 — the only new car I’ve ever bought and probably ever will). I agree, the Passat would be a great family road trip car.

  10. Martin Higham’s avatar

    It doesn’t seem like long ago that a 7-10 year old car was on its last legs. An engine that lasted 100,000 miles was the exception but not anymore. Even the interiors don’t fall apart like they used to. This has had a profound affect on the demand for new vehicles.

    There’s the added effect of new cars losing so much value in a short time too compared to a 5 year old one.

    Maybe producing viable electric cars will change this. Maybe people will want to pay a premium for such a vehicle and maybe they will hold there value better.

    For a while anyway.

  11. Jim Thompson’s avatar

    We sold our 2000 (non-wagon) Passat (same engine). The plastics had started to fracture, and so much of that car is built from plastic. Once the handle to the (oil) dipstick came off in my hand as I went to check the oil. I was already performing most of the routine maintenance (including brake work) on the Passat when we started having random “oil pressure failure” issues. It turned out to be a leaking pressure sender, but I couldn’t find it. When I took it in t the local VW dealer for a fix, they also presented me with an itemized list for everything they could find wrong, to the tune of around $5,000.

    We sold it and bought the wife a BMW Z4. Its all but impossible to do anything other than check the tire pressure without a factory-certified mechanic.

    OTOH, I drive a 74 Toyota Landcruiser with a power-train scavenged from a ’98 Chevy Blazer. Given its Frankenstein nature, I’m left doing all the mechanic work on it myself.

    Polar opposites in one house, and ‘road trips’ aren’t a fact of life where we live.

    Operating systems are a bubble, too. What is already available, be it XP (often seen as free), MacOS X (comes with your mapple) or linux (really is free) works well enough to suit 90% of the solution space. As you’ve suggested, they’re not unlike building material, and I’ve come to the conclusion that best is often the enemy of “good enough”, and tend to side with “worse is better” these days.

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