These shifts caught Detroit completely off guard because it was manufacturing gas-guzzling behemoths with eight cylinder engines, longer wheelbases and power and convenience features that added additional weight. This blend of highly inefficient elements didn't fare well with consumers since most of these vehicles would be hard pressed to yield 15 miles to a gallon--even on the highway. These cars and trucks were not selling because much like today's climate, buyers were clamoring for smaller foreign cars that promised and delivered better gas mileage. In 1973 we had the Gremlin and today we have the Prius...the industry certainly has come a long way, hasn't it.

This summer domestic car manufacturers were again stuck with monstrous eight cylinder vehicles --like SUVs and full-size pickups--and are resorted to tried and true methods like rebates. But they also used other inventive new tactics like gas guarantees, employee pricing and extended loan terms (some as long as 72 months) and zero-percent financing to move their slow selling inventories. At first glance, this may seem like a clear-cut case of d?j? vu. But then fuel prices fell, and sales of hybrids and economy cars that were once so much in demand that dealers couldn't keep them on the lot, are now stock piling in dealer inventory. November sales of the Honda Civic were off over 66 percent from May 2008 sales.

But as many haunting similarities as there are between 1974 and 2008, a closer look reveals that there are some marked differences. Those differences are the key indicators that nullify the prediction that we'll experience the same healthy rebound in claims frequency like we did in the aftermath of 1974 this time around.

Remember that two major factors fueled the high prices in 1974. In that time period the U.S. dollar was weakened dramatically after it was removed from the Gold Exchange Standard (The Gold Standard is a monetary system in which money issuers normally stand willing to redeem their notes, upon demand, for pre-set, constant, fixed amounts of gold). The second cause of the rocketing fuel prices then was OPEC's decision to impose an oil embargo against the U.S. in response to its decision to re-supply the Israeli military during the 1973 Arab-Israeli conflict. OPEC members also extended the embargo to other countries like the Netherlands that supported Israel. The embargo both banned petroleum exports to the targeted nations and introduced cuts in oil production, causing side effects like inflation and suppressed economic activity--much like we're experiencing in today's economy.

In latter half of 2008, despite record deficit spending, the dollar has climbed in value against major foreign currencies to a three-year high. It is, however, still worth 20 percent less than when the euro was introduced. There are several factors that are dissimilar to the factors that caused the free fall of the dollar in 1974.

o Monetary Policy: U.S. monetary policy differs significantly from the European Central Bank's policy. In response to rapidly deteriorating economic growth resulting from the credit market crisis, the Federal Reserve has moved to significantly lower the Fed Funds Rate to its current level of 1 percent. In contrast, other central bankers have been, until recently, much less willing to follow suit due to concerns over inflation. The European Central Bank, has lowered its key interest rate to 3 percent, while the Bank of England's interest rate stands at 3.25 percent, still vastly higher than the U.S. rate. In the short term, the dollar's relative strength versus other currencies is a result of its safe haven status. However, higher European interest rates are a fundamental factor that drives the value of the U.S. dollar down.

o Slow growth: Anemic growth in the United States has hurt the dollar as well. The slow economic growth in the U.S. weakens demand for its dollars.

o Credit crisis: The housing crisis and corresponding tightening of credit discourages investors from buying deflating assets like real estate that are sold in U.S. dollars.

o Trade gap: For 2008, the trade deficit is running at an annual rate of $709.1 billion, up slightly from $700.3 billion in 2007. The gap contributes to an oversupply of dollars in the global financial system and weakens the demand for U.S. dollars.

o Currency diversification: The euro has remained relatively strong and has emerged as an alternative to the U.S. dollar as a store of value for investors.

Because these factors differ from those that affected the dollar value in1974, our current situation may require more time to turn around--making a speedy full recovery of the dollar extraordinarily difficult in the near future.

The second factor contributing to the lower frequency of claims in 1974 was the shortage of gas caused by the OPEC oil embargo. In this case, the shortage of supply was a voluntary punitive act by OPEC, which ended quickly when the embargo was lifted. Once the embargo was lifted and gas prices fell, driving habits and claim frequency returned to pre-embargo levels.

Today's situation isn't so one-dimensional though. With the advent of our current global downturn in the economy, oil futures have plummeted and the price of a barrel of crude oil is at a three-year low. However, the advancing economies of China and India are exponentially fueling the demand for oil, and despite a global recession, are increasing long term demand (paid for in strong currencies like the euro, pound, yen, and rupee) and will contribute to the long term increase in the cost of oil. While OPEC may agree to increase production, the growing demand from emerging nations like India and China's economy suggests that we will not see the level of over production that will lower prices substantially.

And although no one predicted a fall in oil prices from the summer of 2008, it happened. But the real question is, will claims frequency rebound in 2009 the way it did in 1975 after the embargo was lifted, or will frequency be lower because of the recession we're in? Initial indicators from a Reuters study in December, 2008 show that recessionary pressures have reduced gas demand compared to 2007 despite lower fuel prices. Demand in areas hard hit by the housing crisis like California actually saw a 4 percent year-over-year decrease in demand, which could indicate that 2009's claim frequency may be tied more to the overall economic outlook and recovery, than to the single factor of fuel prices.

Greg Horn is vice president of industry relations for Mitchell International, a provider of information, workflow, and performance management solutions to the automotive insurance claims and collision repair industries. He can be reached at [email protected] , www.mitchell.com .

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