|By Euan Wilson
Originally published in the September 2009 Socionomist
Aggregate driver behavior on the roadway is an excellent example of human herding at work. Collective driving patterns are governed by natural rules to the point that highway traffic follows the same rules as arterial blood flow in the circulatory system. Our automatic responses and inevitable habits while driving with throngs of our peers is classic herd behavior. And where there is herding, mood drives it.
This report examines social mood’s effect on the habits of auto drivers. We will discuss:
- the safest times to travel
- the contrary relationship between social mood and plane crashes, versus social mood and car accidents
- the ideal “wave c” car
- what Detroit should do to save the U.S. auto industry
- how social mood affects the government’s enforcement of speed limits
TRAVELING SAFELY: WHEN TO FLY
In January 2007, The Elliott Wave Theorist featured Mark Galasiewski’s essay, “Aircraft Accidents.” It offered evidence that airplane crashes are more likely in bear markets.
In times of falling mood people become more self-absorbed, suspicious, and insular. Risk taking gives way to conservative habits. People lean away from teamwork and want to go it alone. Inclusion gives way to exclusion. Embrace of effort gives way to avoidance of effort (The Wave Principle of Human Social Behavior).
It takes a team to safely operate a commercial airplane. Success requires cooperation among air traffic controllers, baggage handlers, ground mechanics, the pilot and co-pilot, passengers, flight attendants, and other craft in the air. The Wave Principle of Human Social Behavior (HSB) says that caution, paranoia, and risk aversion characterize declining social mood. When people feel paranoid, suspicious, lazy and self-absorbed, breakdowns in teamwork become more likely—even in the teamwork necessary to navigate a 3,000-ton plane from gate to gate.
We then wondered: Does mood affect road safety in the same way?
DRIVING IN A RECESSION: IT COULD SAVE YOUR LIFE!
The road safety question led us to an answer that surprised us: driving in a bear market is safer than in a bull market. Traffic deaths, and by induction accidents, actually decrease quite reliably during falling social mood, as indicated by bear markets in stocks. Angry mood in a retrenchment would seem to suggest that traffic deaths should be higher, yet the facts show otherwise. Whether this decline in deaths comes from fewer cars on the road or more cautious drivers, we cannot conclusively say. Whatever the cause, falls in social mood produce safer roads. That is a helpful fact in an otherwise difficult time.
Total miles driven and auto deaths both drop in recessions. But the pace of decline is far more rapid in auto deaths. Deaths per mile driven also fall in bear markets: a ten percent drop in miles driven translates into about ten percent fewer cars on the road on average. This difference in traffic flow corresponds with increased safety. Perhaps this is why it is safer to drive when social mood is depressed.
For the past 90 years, large declines in traffic fatalities consistently correspond with periods of falling mood. Even the boom decades of the 1950s and 1960s saw small drops in traffic deaths correspond to pullbacks in the DJIA. These drops came in a time that saw the biggest overall rise in traffic fatalities since the 1920s. The bearish mood of the early-to-mid 1970s saw the largest drop in auto deaths since World War II. The depressed mood of 1987 through 1991 accompanied a big decline in auto deaths even in the midst of the 1980s and 1990s bull market. Traffic deaths and total miles driven per capita have fallen dramatically since 2005, the year-to-year drop in 2008 was the biggest nominal fall ever, the same year of the stock market’s largest ever year-to-year decline. Annual auto fatalities since 2005 have fallen a staggering 14 percent, which mirrors the decline in home values.
The trend is not likely done. The Elliott wave pattern today suggests that mood is pushing lower at three large degrees of trend (see Chapter Four of Conquer the Crash). This places immense pressure on nearly all collective activities, including the way we drive. As the long term trend toward negative mood continues, traffic deaths should fall further right along with it.
After the 1970s, the data become more complicated due to technologies that made for safer driving. Therefore, positive mood in those decades did herald a rise in traffic-related deaths, but not as dramatically as in the 1920s or 1950s. The advent of seatbelt and airbag technology is the primary reason for the overall downward drift in fatalities from 1970 forward. A better test for our hypothesis would be deaths per auto accident from the 1920s on. But available data dates only from 1994, which is too little time to observe long-term patterns.
SPEED LIMITS AND SOCIAL MOOD
Governments tend to be more reactive than proactive, including regarding the regulation of speed limits. In bull markets they tend to relax speed limits, but when mood declines, government cracks down on speeding with regulation and fines. These changes always come some years after the trend toward fewer fatalities, so we know that the legislation is not the reason for the drop. The Elliott Wave Theorist’s “Popular Culture and the Stock Market” report (1985) first noted the effect of mood on speed limits when discussing the 1974 low in stocks, “President Jimmy Carter moved to institutionalize the nation’s depressed pace by mandating a 55-mph speed limit nationwide.” In the April 2007 Theorist report “Automobile Performance and the Stock Market,” Mark Galasiewski further commented:
The need for speed returned in the 1980s along with the rise in stock prices. In 1987 and 1988, Congress permitted states to raise speed limits on rural highways and roads. Global optimism reached fever pitch during the 1990 model year, in the middle of the 1982-2000 bull market. In 1995, the first year of the late 1990s’ investment mania, U.S. states began raising speed limits after Congress repealed the 55 mph maximum.
Four years after the high in traffic deaths in 2005 and two years after the Cycle b top in 2007, states, right on cue, are once again restricting the bull market habit of speeding. USA Today reports that Georgia “now adds an extra $200 fine to the tickets of ‘super speeders’ – defined as drivers caught traveling more than 75 mph on two-lane roads or 85 mph on any highway.” Kansas made it illegal to drive in the farthest-left lane of multilane highways except when passing or turning left. Alabama, Mississippi, Florida, Tennessee and Georgia joined forces in July to “Take Back our Highways,” a weeklong dragnet for dangerous drivers. Florida is pushing hardest by requiring all drivers at fault for at least three crashes in three years to attend driving school in order to keep their license.
The arrival of these new regulations with the concurrent bear market is no accident. Increased enforcement and control is merely another expression of negative mood. Initiated after four straight years of falling traffic deaths, this case is particularly ironic.
WAVE C AUTOMOBILES
Elliott Wave Principle defines wave C declines as “devastating in their destruction.” Frost and Prechter had financial markets in mind, yet socionomics helps us to apply this insight more broadly. Wave C is when everything changes, including automobiles. Automakers that respond to this social mood environment can survive and emerge more prosperous, but several elements of car design must change for them to succeed.
Galasiewski’s “Automobile Performance and the Stock Market” (April 2007) found correlations between the maximum horsepower of the Corvette and the Dow Jones Industrial Average. This study includes EPA data for average horsepower in all American vehicles from 1975 on. Figure 2 presents this data, along with the Corvette’s horsepower before 1975.
It shows that as the market (thus social mood) rises, so does the horsepower of the typical American car. Engine strength falls in bear markets. For example, a low in average horsepower per car occurred in 1981, toward the end of the 1966-82 inflation adjusted bear market. After 1982, horsepower rose with the stock market in a trend that carried into the 2000s. In today’s bear market, the appetite for power has been waning. The V8 500+ horsepower engine is losing its luster. We forecast that such raw power will not return to vogue until after the final bottom in social mood, which is still years off.
In light of this conclusion, we can say that American automakers made a series of flawed assumptions over the past decade, which led them to continue issuing bull-market cars. GM’s colossal Hummer brand is gone just seven years after launch. Hummer sales fell from over 33,000 in 2005 to just above 6,000 in 2008. Pontiac, GM’s famous muscle car brand, will close after 82 years of operation. Chrysler, the paragon of American can-do that once made rocket engines for NASA, filed for bankruptcy. Chrysler obeyed the mantra of “big, heavy and powerful” for far too long. The company’s biggest losses stemmed from monster vehicles such as the Dodge Nitro, Ram, Jeep Commander and 300C. The message is clear: bigger is no longer better. Chalk it up to a reversal in social mood.
The Big Three now survive only with government life support. Ford and GM required bailouts; Chrysler agreed to a shotgun marriage with European-based Fiat. For the bailouts and mergers to work in the long term, U.S. automakers must figure out how to produce cars that Americans will buy. The shortest route to that knowledge is to understand the impact of a major-degree bear market.
Fuel Efficiency (Miles per Gallon)
Cars gain fuel efficiency in bear markets by shedding weight and power. Such changes reflect public disdain for the power of a bull market engine and the desire to save money on gasoline. EPA data tell us that from 1975 to 1982 (1975 is the first year data are available), average miles per gallon increased from 13 mpg to 21 mpg, a Fibonacci 62 percent increase. The low in the PPI-adjusted Dow was 1982, also the final year of a steep rise in efficient-engine technology. Twenty-four years later, in the penultimate b-wave year of 2006, the national average remained 21 mpg. Thus, the average fuel efficiency in the U.S. stood in place for more than two and a half decades, whereas the previous seven years (1975-1982), all in a bear market, saw a 62 percent increase. Fuel efficiency suffered as the great bull market desire for horsepower trumped other concerns.
The relationship between mood and engine design informs car companies to shift their focus from power to efficiency in bear markets. Consumers will want cars that are more efficient. Automakers that meet this new demand will greatly improve their odds of success. Automakers that can anticipate social mood trends will do even better.
This change in trend involves more than what’s under the hood. Automobile styling also turns with social mood, as Prechter first postulated in his “Popular Culture and the Stock Market” report. When contrasting bull versus bear markets, Prechter noted “the angularity versus roundness of automobile styling.” In the April 2007 Elliott Wave Theorist, Galasiewski expanded on this idea:
During periods of falling social mood, car frames are rounded. Bodies and roofs are bulbous; hoods and trunks curve or snub as buyers seek the consolation of softer forms. Simpler styling and smaller capacities decrease total surface areas. Car bodies are more enclosed and windows are smaller and narrower as people seek to express less of themselves. Chrome disappears. By the end of the transition, convertibles are out of favor and only ‘delinquents’ ride motorcycles.
Considering all three of our criteria, is it any wonder that the angular, high-horsepower, inefficient Hummer has gone from king of the road to park yard laughing stock?
DETROIT AND THE MANIA
The past decade in the financial markets has been a series of leaps from one “big thing” to the next. One sector after another boomed and collapsed: first technology, then real estate, then stocks, then commodities. The same mania that affected the financial and real estate industries played havoc with U.S. automakers. But instead of stocks, credit default swaps and mortgage CDOs, the fuel for the auto bubble was bigger cars. In their heyday, SUVs sold for a $10,000 profit per vehicle while small cars sold for a loss. In 2006, Ford discontinued its top selling Taurus in favor of SUV production. Executives seldom kill a popular brand, so what led them to kill the Taurus? In a word, mood. Manic mood strongly influenced the decision. In contrast, USA Today notes: “the Japanese stick with their winners and make them better (such as the Toyota Corolla, which has been in continuous production since the 1960s), while Detroit automakers retire cars or entire division nameplates in search of ‘the next big thing.’” When mood-driven executives follow a trend at the expense of other successful programs, a mania-driven disaster is not far behind.
The entrenched business model of the past thirty years also stands in the way of a quick recovery for Detroit. Consider the miles-per-gallon average: It languished at 21 mpg for two and a half decades while horsepower went skyward. A few promising advances in efficiency were never realized because mood-driven consumers simply did not respond to them. The SUV explosion pulled fleet mpg averages downward. The reason small cars remained on the market at all, according to USA Today, is an old one: “For nearly 30 years, Detroit’s auto producers have sold small cars for two reasons – to attract young buyers with inexpensive options and to increase their fleet average fuel economies to meet federal standards.”
The bitter medicine car companies must swallow is this: social mood has done an about-face. Consumers have turned away from a love of everything big, powerful and profitable, and toward a desire for vehicles the Big Three are least well-equipped to produce. Like their compatriots at the big financial banks, they must accept that we have entered a new, challenging reality.
One newly-popular auto already reflects all four preferences we have discussed: power, efficiency, weight, and body. The Smart Car is one of only two vehicles in the U.S. that actually increased year-to-year sales (up 83 percent in 2009). The Smart Car has rounded styling, and its small 3-cylinder, 70 horsepower engine gets 41 highway miles per gallon. It also scores well in the bear-market priority of safety, getting top marks in eight out of eleven categories. The car sells in an average of 28 days, while the industry average is 95 days. Everything about the Smart Car design satisfies bearish mood, and customers are responding with gusto: its sales are the fastest growing in the country.■
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Most economists, historians and sociologists
presume that events determine society’s mood. But socionomics hypothesizes
the opposite: that social mood regulates the character of social events. The
events of history—such as investment booms and busts, political events,
macroeconomic trends and even peace and war—are the products of a naturally
occurring pattern of social-mood fluctuation. Such events, therefore, are not
randomly distributed, as is commonly believed, but are in fact probabilistically
predictable. Socionomics also posits that the stock market is the best available
meter of a society’s aggregate mood, that news is irrelevant to social
mood, and that financial and economic decision-making are fundamentally different
in that financial decisions are motivated by the herding impulse while economic
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Wave Principle of Human Social Behavior © 1999, by Robert Prechter;
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Hidden Engine; (3) the video Toward
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