The Herd Instinct and the rise of SUVs

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Robert Frank tries to explain the rise of fall of SUVs- to a lot of people it will seem quite obvious;

“Economists increasingly recognize the importance of herd behavior in explaining ordinary purchase decisions. A case in point is the sport utility vehicle. Herd behavior helps us understand not only the explosive rise of this market segment in the 1990’s, but also its imminent collapse…

The conventional determinants of consumer demand cannot explain this astonishing trajectory. Cheap fuel was a contributing factor, but clearly not an adequate explanation, because fuel had also been cheap in earlier decades. Similarly, rising average incomes cannot have been decisive, because the pre-S.U.V. decades had experienced even more rapid income growth…

To understand the explosive growth of S.U.V. sales, we must look first to changes in demand caused by new patterns of income growth and then to how others responded to those changes in demand. Unlike the three post-World War II decades, when incomes grew at about the same rate for people at all income levels, the period since the mid-1970’s has seen most income growth accrue to the wealthy

An important feature of the herd instinct is that people are more likely to emulate others with higher incomes. Seeing a wealthy studio executive behind the wheel of a Range Rover instantly certified it as a player’s ride. As more and more high-income buyers purchased these vehicles, their allure grew. And when other automakers began offering similar vehicles at lower prices, S.U.V. sales took off…”

For Comment; Do readers of newspapers really appreciate economists telling them things that appear ‘common sense’? How does topics for op-eds get decided? Does the writer get paid or tipped to write about certain products and issues?

Via Michael Blowhard

1 Comment

Why would anybody accept the analysis of auto culture from someone who doesn't drive a car, from a newspaper in the most car-hostile city in America?

Why did the SUV craze hit when it did? Because Ford released the Explorer when it did, and it was a FANTASTIC vehicle. It was exactly what Baby Boomers with small children wanted and needed in a vehicle. Before the Explorer, SUV's weren't as well designed towards the needs of Baby Boomer parents with small children. The changes made can be seen by comparing a Ford Bronco II (the precedent to the Explorer) and the original 1991 Explorer. It's like night and day.

Once the Explorer became a sales hit, it was copied by all the other automakers, thus growing the market for SUVs tremendously.

While the Explorer was an upmarket vehicle, it was still a Ford. Ford is not exactly a trend setting brand.

Looking at demographics, 1991 was in the thick of the "baby boomlet". The Explorer and the SUV craze were both helped greatly by the change in demographics. 89 cent gas also helped.


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This page contains a single entry by Paul published on August 6, 2006 2:31 PM.

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