The New York Times has put out a story saying what’s already on many industry observers’ minds: “The historic collapse of the new-car market dragged on in December, raising questions of whether the auto industry will ever again have sales levels that it took for granted just a few years ago.” The easy credit, hyper-consumerism era had established new car sales in the 16 million per year range. But then along came 2008’s dismal 13.2 million units… and the last half of the year was much worse than the first. Even the former “don’t worry, be happy, better days are just around the bend” cheerleaders have given up. “GM’s chief market analyst, Michael C. DiGiovanni, said the automaker was predicting industry sales of 10.5 million to 12 million vehicles for the year.” Long time industry pundit John Casesa says: “After an era of excess indulgence, we’re now entering a prolonged period of conservation. Trading in a car every three years is a luxury that the average American can no longer afford.” Against that background, one can only wonder what fantasies will be embedded in the new, new, newest turnaround plans GM and Chrysler will hand in to the U.S. Treasury Department a few short weeks from now. No matter what their term papers say, Casesa pegs it: “The internal problems of the Big Three are so great, there is no way they can survive without government help for several years.”
Much of the new car and truck market has been made up of people who wanted new wheels, who “deserved” new wheels and not those who really needed them. Meanwhile, the average age of the fleet on our roads has risen from about six years in the 80s to around nine years now. That 50 percent increase in automotive longevity is both a great technical accomplishment for the industry and a big sales problem.
The old regimen of planned obsolesce driving demand for new cars ran smack dab into import competitors who played by different rules and forced the game to change. For a time, the easy money era masked this dwindling underlying demand brought on by longer lasting vehicles.
In fact, the U.S. now has more registered vehicles than it does licensed drivers (guilt as charged in our home!). The shift from one income to two income households over the past few decades probably has much to do with that as well. But, the demand pumping game has come to a sudden screeching halt and many formerly two income households have been brutally pushed back to one or zero incomes.
Bush 41’s favorite word “prudence” is suddenly back in style. Those consumers who still have jobs are watching their budgets just like grandpa used to.
So where does that leave the underlying demand picture? My guess: around 10-11 million per year for quite a few years to come. If so, almost everyone is in big, big trouble. Marginal players like Chrysler, Mitsubishi, Suzuki, Kia, Jaguar, Land Rover and most of GM’s brands will have no choice but to close up shop in the U.S. Things look bleak for VW/Porsche/Audi as well. VW/Audi hasn’t made a profit in the U.S. in ages, and that was when times were pretty good.
A period of great extinction is once again upon the industry.
Marginal players like Chrysler, Mitsubishi, Suzuki, Kia, Jaguar, Land Rover and most of GM’s brands will have no choice but to close up shop in the U.S.
I don’t think so. Small does NOT mean ineffective, or unprofitable. Just as big does not mean efficient and profitable (who would that be?)
I know a guy who works for Kia: they’re still planning to expand. You could call them crazy, but if they are not scared yet, nothing is going to scare them off.
Not only will the market be smaller but it will be frugal. A lot more of the $12-18k Fit & Focus with a lot less in the $30-45k range.
Almost any car made today can be nursed out to 150-200k with proper care and feeding.
Kia is going as fast as they can in building their slice of the market. They are a high volume, low cost, low markup producer. Perhaps that’s why they will survive this economic malaise, cheap new cars for when times are tough.
I disagree with the close up shop too, each of those producers you listed have different and at times difficult tracks to profitability. I won’t say that all listed will survive but all shutting down shop is a big stretch.
It may take a while for sales to pick back up but the population is still growing. I don’t see a great migration back to the city where people are riding the bus so we are going to need more cars.
Subaru and Mazda should also be mentioned as “marginal players”
I guess my family is an example of the “conservative” car buyer
amongst me and my parents and my brothers
2005 Saturn ION, 1997 Honda Accord, 1996 Ford Explorer, 1998 Jeep Grand Cherokee, 1987 Chevy Suburban, 1998 Mazda 626, 1989 Volvo 240 DL, 1993 Volvo 940 Wagon.
Carmakers aren’t making any money off of us but AutoZone sure is!
I don’t see Audi, Jaguar, Kia, and VW going anywhere. Audi and Jaguar will have to cut volume, and perhaps dealers, sure. The VW brand will continue in the US, even if it bleeds red ink for the Germans. Unfortunately, you’re going to be seeing a lot more Kias on the roads, I’d say.
Chrysler-Dodge-Jeep, Mitsubishi, and Suzuki are at risk. All the wishful thinking in the world won’t kick Land Rover off our shores.
If we were buying so many new cars so often, how did the average age of cars on the road rise 50%? I can’t make that math work.
Is December the New Normal for U.S. Car Sales?
Not at all. This is a uniquely poor economic period, not a new average. You’d have to believe that we are on the brink of a depression to accept that this market figure is a new status quo. Credit crunches are abnormal, and not the norm.
If you really believe that these conditions are somewhat permanent, then you should be going a lot further and betting on the market shrinking dramatically from here, because there is no way to have a credit squeeze this severe for an extended period without things getting substantially worse.
Albnyc :
If we were buying so many new cars so often, how did the average age of cars on the road rise 50%? I can’t make that math work.
Easy: cars last much longer now, so there are still a lot of 15- to 20-year-old cars still chugging along.
As late as the mid 70s, my personal rule of thumb was that you didn’t see many 10+ year-old cars on the road — that is no longer the case.
One, two, or three months does not make a trend. We hit 16 million plus new car sales in 1986. It took 13 years for that record to be topped, and we then proceeded to sell cars in the 16-17 million unit range for 9 straight years.
It may take awhile, but we’ll someday get there again. The night always seems darkest just before the dawn…
210:
Agreed on that point, but I would still like to see the how the numbers work. Facts are tricky things in the hands of the media (and others.)
While I don’t think Canada is going to save the auto industry, sales are only down 1.1% year-over-year here (1,635,986 sold in 2008), according to a news release posted at canadiandriver.com. Many Canadian arms had their best years ever, such as Honda.
“The internal problems of the Big Three are so great, there is no way they can survive without government help for several years.”
Uh, not going to happen if I can help it—this bailout is a one-time-deal. Make it work or reorganize because by ‘government help’ they mean ‘my tax dollars’ and I’m tapped out. I get taxed when I earn and taxed when I spend. As a small business owner, in California, I have to pay the Franchise Tax Board $800 every year for the privilege of doing business here even if I don’t make a profit that year. Nevada looks better every year (no corp tax, no personal income tax). But, I digress.
We’re in a recession. Of course there is going to be a contraction of industry, commerce, and services. The government cannot and should not prop up businesses when there is an oversupply simply to save jobs. I would approve of the govt using tax dollars to retrain displaced workers or temporarily employ them in a 21st century New Deal jobs corps. We need new bridges, roads, etc. and the people to operate and maintain the machines to do it. I’d rather my taxes go to create something useful, long-lasting and vital to our security and economy…
@Albnyc – It’s easy: you buy more cars yet don’t get rid of the old ones. In a two year period I went from 1 car with an average age of 5 to 4 cars with an average age of 19. And that included buying a brand new car!
See any 0%/72 months offers? No? Then the answer is yes to the question in the headline.
Is December the new normal?
The more I look at the numbers, the more it would appear as though 8MM for 2009 is highly optimistic.
All the academics and honest government insiders are saying that 2009 is going to be far worse that 2008. Facts on the ground continue to support that view.
These are not really complicated algorithms.
Look at the imaginary growth that was driven by the real estate bubble, the stock market bubble, the invisible growth of unregulated insurance (CDSs)to make it happen. Look at average income, average household debt. Number of foreclosed homes, number of people late on their HELOs, value of their 401k plans.
Add and subtract as you play. Stir in 10%+ official unemployment.(The real number is always the official number + about 4 points, but I digress.)
Bottom line, there’s always somebody who has to have a new car. But it’s going to be the people who have to have one.
10MM in 2009? Uhh, nope.
Yes.
Too many factors against car purchases and it is not just credit availability. Face it, the car for many folks is merely a tool. The tool is becoming expensive and burdensome. Time lost sitting in traffic sucks. Alternatives to getting around are increasing. Car sharing services are taking off. Vehicles do last longer if properly cared for. A lot of folks are entering retirement with extra cars and not much of a cushion for retirement. Generation X lacks a financial safety net too and has had job insecurity and housing losses too. I’ve witnessed folks unloading extra vehicles this past year, start using the bus and ride bicycles to work. The market is and has changed.
I don’t think 10 million is the new normal, though it might last a few years until the country uses up the excess capacity from overproduction.
As to how people are buying new cars and yet they are lasting longer, I’ve noticed over the last 8 years or so that you didn’t really see jalopy’s all that often. The cars with mismatched body parts, severe gashes, severe rust, disappeared from the road, thought they have made a comeback in the last 6 months. My guess is that the less prosperous benefited by the excess new car production by having better used wheels. The parking lot at my high school was full of beaters; not so much these days.
This is gonna be real ugly when the auto companies really start competing for their share of this half sized pie. Can’t keep running the plants at one shift forever.
And then the Fed’s are subsidizing the North at the expense of the South.
factotum,
“not going to happen if I can help it”. Sorry, brother, but you can’t stop it. Neither can I. We don’t live in a Democracy. We live in a Republic so we cast votes for individuals who then cast votes on issues for us. Our Congress and President have let us all down on this one.
Tex
@TexN
You’re right, of course I have no power. I’ll just not give DC any of my money. If 10 million do the same we can start a revolution.
You would have to lose a lot of Jaguars, Mitsubishis, and Suzukis if you were to cut the capacity of the new car market in the US. Only the implosion of Chrysler-Dodge-Jeep can save the market as a whole for everyone else (GM, Toyota, Ford, Honda, Nissan, Hyundai, Mercedes, VW-Audi, BMW, Mazda, etc).
GM can help by kicking out Pontiac and GMC, which I don’t think bring in the marginal profit over cost required to dress up these Chevys. Buick and Cadillac stay, because they do represent profit as well as future sales (medium term, not necessarily the long term).
Smaller markets are fine, but you have to loose a player or two. Chrysler is clearly one, and GM’s share is still sliding fast, so there is room for OTHER companies to be healthy (including Ford).
In the U.S., we have 200 million licensed drivers and 240 million licensed vehicles.
Even if we account for classics, antiques, rare cars, hunting jeeps, etc., we’ve still got enough vehicles to sit it out for a while.
I’m not sure if this is credible, but if it is it’s pretty shocking:
“Car ownership is also high in wealthy countries with remote rural populations, such as Iceland and New Zealand. Surprisingly, America, home of the motor vehicle, has fewer cars per person than either Australia or Canada.”
http://www.economist.com/daily/chartgallery/displayStory.cfm?story_id=12714391&source=features_box_main
And then the Fed’s are subsidizing the North at the expense of the South.
Bluecon, the Feds have transferred about a trillion dollars out of the industrial Midwest, which has a net federal tax drain. Much of that money went to the South, that has a net federal tax gain. It’s the industrial Midwest, Pacific coast and Northeast that have been subsidizing the South, not vice versa.
@no_slushbox,
The only caveat I would throw into the mix is how we measure “ownership”.
The US numbers count licensed vehicles. I’m sure with some creative datamining I could come up with some approximate number of cars that are unlicensed/unregistered.
Now I’m sure everyone here has registered and licensed all of their vehicles, but I’ve heard stories about car nuts who have dozens of cars. Most with open titles. Or have cars in the garaqe that are titled to them, but aren’t licensed. Some collectors, some just spare cars that nobody has needed to drive.
Just a thought.
Umm..about that picture that accompanies the article: It’s said Ford even mortgaged the blue oval logo. Is that guy the repo man, come to haul it away?
Bluecon, the Feds have transferred about a trillion dollars out of the industrial Midwest, which has a net federal tax drain. Much of that money went to the South, that has a net federal tax gain. It’s the industrial Midwest, Pacific coast and Northeast that have been subsidizing the South, not vice versa.
No, Ronnie, as this table shows, both the Midwest and the South are net receivers of federal taxes (the South does receive more), paid for mostly by those elitist liberals on both coasts. Remember to add-in those generous Ag subsidies…
Hey, factotum, what are the chances of CA seceding from the Union? You could save a bundle in federal taxes (no more corn ethanol!). Surely Schwarzenegger is better protection than the Department of Homeland Security!
I do not understand why Hyundai is competing with itself by way of the Kia brand. If sales stay in the tank, shutting down Kia is a viable option. Tata is in trouble at the moment and the take over of Jaguar and Land Rover has done nothing for the health of the company. Both brands could disappear tomorrow and the marketplace would just barely note their passing.
Subaru stayed off my list because their sales were actually up last year. They have a well defined niche and seem to serve it well. Subarus also seem to be a target move-down vehicle for those coming off their monster truck hangovers.
I should have included Mazda though. A cool niche brand, but they haven’t exactly covered themselves in market glory in the good times. Just how many Japanese vehicle brands will a shrunken US market support?
“It’s said Ford even mortgaged the blue oval logo. Is that guy the repo man, come to haul it away?”
No, it is a sign being removed from a dealership which gave up its franchise to focus on used cars and service.
albnyc- more people
Anyone want to support me in adding Acura to the endangered species list?
Is December the New Normal for U.S. Car Sales?
No, December is the good old days.
We are looking at a trend that will last at least several years. There is nothing on the short term horizon that looks to change this; on the contrary.
No effective inflation-adjusted wage increases in three decades, no one able or willing to get credit for a too-expensive item, job losses everywhere you look, wage and benefit cuts everywhere, house equity loans kaput, a huge glut of latish model used cars, government and Fed in full panic mode, generating money and throwing it everywhere as fast as they can. OK, not everywhere; in fact, at only a very few select targets who also happen to be buds.
Raw material costs are falling. The dollar is rising. There is no justification for the prices of cars staying the same in an overall price deflation while inventory stacks up.
The longer manufacturers insist on wishing prices, and the longer that governments subsidize these prices, the longer until sales start to move again.
This will take years.
One year ago, who predicted what we are seeing today? No one quoted by the press, no one. Their creds are shot, they were way wrong. And a year from now will sales under 8 million they will be claiming the same crap: nobody could have seen this coming. When they, too, earn their livings from the auto industry: bought and paid for (or not), Jack.
Engineer: No, Ronnie, as this table shows, both the Midwest and the South are net receivers of federal taxes (the South does receive more), paid for mostly by those elitist liberals on both coasts. Remember to add-in those generous Ag subsidies…
The Northeast and California have supported higher taxes, which are assessed most heavily against the top earners, and most high earners live in those areas.
One would therefore expect that residents of those states would pay more taxes under those policies. They are only getting what they want…