U-Haul Economics (California's Meltdown)

Marketwise Black Box ^ | 10/25/03 | Rick Ackerman

[Cicero]

U-Haul Economics by Rick Ackerman

A Chicago economist has come up with an interesting and seemingly plausible new economic indicator. We’ve all heard stories about the exodus of U-Haul vans from California, but the details are usually too sketchy to tell us much. Turns out they can be quantified in dollars and cents so that the flow of traffic reveals which U.S. regions are hurting and which are prospering. For instance, while it costs $1,080 to rent a 26-foot U-Haul truck for a one-way trip from Los Angeles to Las Vegas, the rental going in the opposite direction is just $133. To economist Brian Wesbury, the difference implies that people are moving out of California as opportunity diminishes and the economic slump persists. Here are a few more telling comparisons, as reported in the Financial Post: A one-way U-Haul move from Los Angeles to Phoenix costs $837 while the return costs $116. San Francisco to Boise: $2,024. Return trip: $310. But look at the Midwest and the rate differentials practically disappear. A U-Haul rental from Chicago and Detroit costs $419, while the return is $449. "Obviously, California is having a hard time keeping U-Haul trucks in the state," wrote Mr. Wesbury in a note to clients.

He thinks it will be possible to measure Arnold Schwarzenegger’s success by noting the extent to which U-Haul rate disparities grow or shrink during the new governor’s term. Wesbury says that conventional statistics, such as personal income growth, are not as useful because they reflect changes that have already occurred. But looking at market prices such as those reflected in U-Haul rates gives an accurate picture of the here and now. "Because markets bring together the decisions of millions, they always provide signals that are much more accurate than forecasters, politicians or the press," said Wesbury, as quoted by Financial Post reporter Jason Chow. Other recent rates for a 26-foot truck, one way: Los Angeles to Las Vegas: $1,080 Las Vegas to Los Angeles: $133 Los Angeles to Phoenix: $837 Phoenix to Los Angeles: $116 Los Angeles to Denver: $1,908 Denver to Los Angeles: $498 San Francisco to Boise: $2,024 Boise to San Francisco: $310 Chicago to Detroit : $419 Detroit to Chicago: US$449.

[Cicero]

Here's a reality check on Gray Davis's handling of the California economy. The numbers are astonishing.

[LibertyAndJusticeForAll]

Mexico City to Los Angeles, FREE.

[Cicero]

Ping

[Mears]

The numbers are not only astonishing but simple to understand.

Thanks for posting this.

[Cicero]

Well, no. If you did an economic analysis, you'd almost certainly find that Mexicans are willing to pay substantial sums to be trucked like cattle into California, whereas the going rate the other way is relatively small.

It's only free when they get there, which indicates how government tries to distort market forces--until it goes bankrupt.

[Amerigomag]

Not to burst the bubble but the reasoning behind the pricing is based on the unit's chance of return.

The COR (chance of return) is based on two factors. Population and changing demographics.

In the case of California population is the chief factor. There are simply so many more people in California than Washington, Oregon, Idaho or Nevada that the odds of a prompt return are low. Even if a similar percentage of populations in the periferal states were changing demographics you'd still end up with the units all stacked in the periferal states.

[Straight Vermonter]

Having recently rented a U-Haul that appeared to be older than me I wouldn't give 10 cents for one going anywhere.

[Russian Sage]

Also, the rates don't just reflect the difficulty of keeping U-Hauls in California, but the value of keeping a U-Haul in Califormia. The intrastate U-Haul business in populated states so dwarfs the business in Las Vegas or Boise that having a trailer/van sitting out there is a pointless drain of capital.

[LibertyAndJusticeForAll]

You're right, I forgot that the coyotes charge a very high fee.

[Joe Hadenuf]

Exactly..LOL...

I wonder why this Chicago economist didn't look at the price of homes, and how fast homes are bought when they go on the market in Cal. He should have looked at the low inventory of existing homes for sale. Most realtors would kill for listings, as the percentage of people looking to buy are far greater than existing homes that are avaiable.

Of course some here will tell us that it's the illegal aliens that are buying those $500,000 (and up) homes.

:o

[arthurus]

However you figure it the numbers can only show that more uhauls are leaving than entering. California is losing settled people- those with possessions. It is no different if the surrounding states are heavily populated or not. We are not measuring change relative to these other states at all.

[Dark Wing]

You will find this very much of interest.

[ModelBreaker]

You can check out any time you like. But you can never lee-ee-eeve.

I got out in 1999.

[coloradan]

I beat the rush - I left in 1993.

[ZOOKER]

There are other factors at work here.

It occurred to me that it wouldn't cost $900 (or even half of that) to hire someone to drive a U-haul from Las Vegas back to LA, empty.

So why the $900 difference between rates? Has to be supply-and-demand, the trucks are so in-demand in LA that they can charge whatever they like and someone will rent them.

It's an insight into the tremendous volume of evacuees.

[Prof Engineer]

ping

[Joe Hadenuf]

I beat the rush - I left in 1993.

Ouch.

Your home you sold probably doubled in price just since 93....They are now bringing above full price offers.......

Yowza...

Regards.....

[hedgetrimmer]

Interesting.

[TenthAmendmentChampion]

Sounds like it would be cheaper (if a little less convenient) to fly to Las Vegas or Phoenix and drive a U-Haul to California and back, thus making it a local trip.

[monocle]

Your point is well taken, but if those moving to California overwhelmed the number leaving would not the rates be reversed for the same reason you proposed?