America After Peak Cars and Snacks
Tom Cruise’s sports agent in Jerry Maguire launched one of Hollywood’s great catchphrases: “Show me the money.” But the smarter lines come from the wife of Maguire’s big client. When Maguire can only get his client a gig endorsing waterbeds, the savvy spouse explodes: “He deserves the big four — shoe, car, clothing-line, soft drink. The four jewels of the celebrity endorsement dollar.” Two of those four jewels are cracking, and the fissures will reshape the U.S. economy.
Ask a European to describe Americans and you’ll likely hear two things: big people and big cars. Sure, it’s a stereotype but on average Americans do weigh 20 percent more than their transatlantic neighbors and drive 32 percent bigger cars. This is not just a matter of pounds and inches. Food (including soft drinks) and cars are key drivers of the U.S. economy, together employing 16 million and 4.4 million, respectively.
But these two sectors may soon shrink, upending a powerful 70-year trend that began after World War II and literally shaped American life. Smart investors must figure out which parts of the economy will grow instead, claiming a bigger share of the family purse.
After so many generations raised on Twinkies and V-8 engines, why would consumer tastes downshift? Blame kids and chemists. On the car front, put simply, kids don’t care much about them anymore. Just ask high school driver’s ed instructors, many of whom started as gym teachers, upgraded to drivers ed, and are now being sent back to gym class to referee kickball games. In the 1990s, 80 percent of high schoolers earned their drivers’ license. That number has dropped 40 percent. And why not? Uber, Lyft, and Zip rides are just minutes away.
Like audiences for symphony orchestras, the average age of a driver has climbed. A 70-year-old is more likely to drive than a 20-year-old, and since 1990 the average age of a Motor Trend subscriber has climbed by 7 years.
What a change since the days when President Eisenhower launched the national highway system, and the Beach Boys sang about a girl who “makes the Indy 500 look like a Roman chariot race” and will have “fun ‘til her daddy takes her T-bird away.” Back then cars were more stylish, with jet-age fins and two-tone paint jobs. Carmakers used to hide their new designs from car magazine paparazzi, who would chase prototypes through backstreets of Detroit, hoping to snap a glimpse of a new Chevy Bel-Air or Studebaker Golden Hawk. CEOs would host dramatic, televised unveilings of new models. Today Bill Ford doesn’t hear oohs and aahs; Tim Cook from Apple does.
This downward shift seems to be on automatic pilot, which is fitting since self-driving cars are just around the corner, figuratively and literally if you live in Phoenix or Austin. While headlines blare whenever a self-driving car bends a fender or slams into a pedestrian, each day they get smarter. As they learn superior driving skills, auto insurance companies might retreat from humans or jack up monthly premia beyond affordability. Already the average annual bill for auto payments and insurance exceeds $5,700. Even with current high rates, many leading insurance companies have fled California since 2000, where legislation and hazardous driving make it unprofitable to do business anyway.
And then there are the electric vehicles, which contain 90 percent fewer parts and require 30 percent fewer workers to build than the gasoline-powered sort. Squeezed by all these pressures, it’s hard to see how autos will dominate future economic headlines, except if someday robots go on a factory strike. No surprise, then, that NBC recently cancelled American Auto, its sitcom series about a struggling car company.
The second jewel of the Jerry Maguire quartet, soda, is vulnerable not because of the changing tastes of kids, but literally the changing tastes of plump people. Today over 135 million American adults — half of them — are either diabetic or pre-diabetic. But in the past year, share prices of snack companies like Hershey and Mondelez have fallen about 30 percent. Investors and food executives worry that new drugs like Ozempic, Wegovy and their cohort will reduce appetites. A 2021 study in the New England Journal of Medicine shows that people who take such medicines for a year cut their calorie intake and lose about 15 percent of their body weight. Morgan Stanley reports that 65 percent of obesity patients drank fewer sugary carbonated drinks, and Wal-Mart’s CEO reported that the grocery basket has already shrunk, with “less units, less calories.” America’s food bill could dip by several percentage points.
Of course, these new drugs do face obstacles, and long-term use may reveal risky side effects or evidence that their appetite suppressant impact wears off. It’s also possible that users get depressed when they realize they’ve lost their lust for Krispy Kreme donuts and 32-ounce Super Big Gulps of Mountain Dew.
At this moment, insurance companies are struggling to decide which medications they should cover and for whom. The drugs are pricey. Yet if customers lose weight, they are less likely to suffer heart attacks, require expensive knee replacement surgery, or need to drive around shopping malls in electric scooters.
If Americans spend less on cars and consume less food, where will they spend instead? Assuming families are not bankrupted by higher energy and housing costs, these trends should free up more dollars for entertainment experiences, whether streaming subscriptions, concert tours, video games, or family vacations. Disney could find even more fans showing up at the parks but perhaps spending less at Minnie’s Bake Shop. The price of entering Mark Zuckerberg’s Metaverse or Google’s Starline may seem more affordable. Taylor Swift may be able to raise her concert prices even higher or launch doppelganger avatars to perform her songs simultaneously in stadiums across the world. Cruise lines may finally recover from pandemic fears and earn profits without needing to pile food so high at the buffets.
When Jerry Maguire appeared in 1996, we had no streaming, no iPhones, and no EVs. The term 5G sounded like a spot in a parking garage, and the cloud was only up in the sky. Cars and obesity seemed like forever. Soon we may see them in the rear-view mirror.