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Fasten Your Seatbelts: As Goes Daimler, So Goes Europe

A peak in Europe's automobile market coincided with the peak in stocks in 1999 and 2007. Has another turn already occurred?

by Nico Isaac
Updated: April 20, 2017

We all get that, in developed nations, the automobile industry is a strong indicator of their overall economic health. In a strong economy, people buy new cars, which drives demand for industrial commodities like steel and iron; spurs growth in the production and price of raw materials -- to provide fuel and oil; helps small and large businesses like auto mechanics, mid-size dealerships, and banks (which finance car loans); and even helps pretty people find work as actors to sit in cars for commercials.

It's a symbiotic relationship that's been at play for the last century, since the invention of the automobile.

But our friends at the Socionomics Institute take this relationship one step further to say it's not just the number of cars sold that mirrors economic health; but also, the kinds of cars in demand. Over a decade ago, in the July 2006 Elliott Wave Theorist, analyst Mark Galasiewski summarized socionomic hypothesis in a two-part study titled "Social Mood & Automobile Stylings":

"As mood rises toward excess, consumers also demand more room, bigger engines, and more sophisticated styling, prompting designers to push the limits of automobile length, width, and height."

With that in mind, we'd like to introduce one of the stars of the 2017 Geneva International Motor Show: the Mercedes-Maybach G-Class 650. That's G, as in $500 "grand" to own one. What do you get for a car that costs as much as putting two kids through all four years at Yale?

Here's a short list of its features:

  • V12 bi-turbo engine with 630 horsepower and 738 pounds per foot of torque (that's "Manglish" for "wicked awesome")
  • Reclining rear seats with built-in massage rollers, dual entertainment consoles and fold-out trays; thermal cup holders, a retractable canvas top, electric glass partition separating passengers from driver that goes from opaque to transparent, and "enough [interior] leather to put cattle on the endangered species list" (Feb. 13 Wired Magazine)
  • It also stands over a foot off the ground, has a height of 7.3 feet and is 17.5 feet long

Oh right, did I mention it's also an SUV targeted toward suburban families, just one entrant in a long assembly line of suped-up crossovers, sound-barrier breaking sports cars, and James Bond-worthy station wagons.

Fitting the socionomic hypothesis, this new wave of "super cars" reflects the super optimism underway for the economic future of Europe and the world in general. Writes a March 16 Economist:

"Today, almost 10 years after the most severe financial crisis since the Depression, a broad-based economic upswing is at last underway. Since the first time since a brief rebound in 2010, all the burners are firing at once."

To add to that optimism, on April 19, a new report showed that new car sales in the 28-nation European Union soared 11% for March, the highest March total on record.

The problem with this "tank" half-full outlook is that it only shows half the story. The other half is featured front and center in our April 2017 European Financial Forecast.

There, editor Brian Whitmer provides this long-term chart of one of Europe's leading car makers, Daimler Group, producer of the $500,000 Mercedes-Maybach G-Series 650 we highlighted at the beginning:

You know the saying, "as goes GM, so goes America"? Well, this chart captures a similar correlation: As goes Daimler, so goes Europe. Case in point:

April 1999: Daimler shares peak. A year later in March 2000, European and U.S. stock markets burst.

October 2007: Daimler shares peak. At the same time, European and U.S. stock markets turn down in the worst global market decline since the Great Depression. Writes Brian Whitmer in the April European Financial Forecast:

"Within three years, moreover, the Asian and European automobile market would be in tatters, and the U.S. government would be readying a $20 billion rescue of the Big Three Automakers: Chrysler, Ford, and GM."

And the last arrow,

March 2015: Daimler shares peak. One month later, the Euro Stoxx 50 hits an all-time high, retreating lower since.

Whether this is just a temporary blip on the road to full recovery -- right now, the April 2017 European Financial Forecast offers you objective analysis of the European auto market and gauges whether this critical engine of the overall economy is equipped, like the Mercedes-Maybach G-class, to "ride smoothly over rough terrain."

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Stay on Top of the Opportunities and Risks in the European Stock Markets

You can get Brian Whitmer's analysis and forecasts each month with The European Financial Forecast. You'll gain an invaluable big-picture outlook and tap into important social trends that will give you an edge over the investing herd. The European Financial Forecast is your single best source for opportunities in European markets.

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