All recessions recede. Eventually. In the case of this recession, it may be the car driving us out of the economic bog. Pent up demand could soon stoke the car market and relieve the general dearth of demand putting downward pressure on the economy. You can see it in our turnover ratio: the total number of registered vehicles in the U.S. divided by the sales rate. As of this quarter it’s 23.9 percent. That’s the highest ever, because it’s ridiculous. Americans are not planning to replace their vehicles once a generation. It can’t be done. My father tried it and the salt-covered roads of upstate New York put holes in that plan. Rust always wins.
The demand for cars is building like the magma under Kilauea. To paraphrase John Maynard Keynes, capital needs to be replaced periodically due to use, decay and obsolescence. Or, in automotive terms, wear, tear and something way better has just hit the show rooms. Exactly how long this miraculous bounce back is going to take? I don’t know. The 1981 recession took six years to escape. Still, you know, that’s kind of good news, right?
People have been wacked hard in savings, property values, job security and more.
Nothing will be fixed until those are taken care of.
Meanwhile, the lines at NAPA Auto Parts gets longer and longer.
Yeah, not so much.
First of all, it’s not the 70s anymore. Cars have a much higher longevity than 30 years ago.
Second, artificially inflated sales in recent years have lowered the average age of the vehicle fleet.
Third, the number of cars is inflated by a big amount of second and third cars bought due to the avilability of easy credit. These Trucks-bought-as-recreational-vehicles-to-tow-the-jetskis simply won’t be renewed in the current economic climate.
I do not see why cars cannot be kept running longer. My 8 year old Lexus and 10 year old Dodge Ram are doing fine.
Of course I do not travel “salt-covered roads of upstate New York” but it would seem not many do anymore. They all seem to have moved here (Metro Atlanta) or to Texas.
Besides good news for Genuine Parts Company, it might be more people have learned that a vehicle is an item that declines in value generally. The longer between replacement times, the less one gets beaten over the head financially, possibly short changed by the dealership runaround and one saves on taxes and insurance.
Just my anecdotal observation.
Very few people are coming into my showroom because they “want” a new car. (maybe it’s because I sell Hyundais?) Most of the trade ins we get are 7-10 years old with over 100k on them. The only people trading sooner are the current Hyundai owners who get the loyalty rebate.
I agree that job security is a prime reason people are waiting.
Everyone’s been extrapolating yearly figures from Jan. sales figures which is just wrong. It’s not going to be unicorns and rainbows for quite some time but it’s also not going to be the pit of death that everyone’s predicting. Look at the NMY in July for what will really be the future.
Will Ford’s 2010s be the flavour that everyone wants? Will a simple refresh of GM’s line be enough to get them off life support? What do the Asian folks have in store? Can the Euro be held off to allow the Europeans a decent return at still a reasonable price?
Funny. I saw those graphs a while ago, and I’ve been looking for them since. Thanks.
However, they really don’t say much. You can see in the 1970s car died quickly (10 years). Since then they have had a lifespan of about 15 years, give or take a year. All modern cars can be pushed out for another year or two. Take a 13 year old car (mine). I can easily get two more years of life out of it, and maybe 3 if I invest about $5000. Much cheaper than a new car.
Throw is unemployment, and it is safe to extrapolate from January’s numbers. 8-9 million car sales a year is a sustainable number..
The population centers of the US continue to move away from the rust belt and towards the sunbelt. Reasonably maintained vehicles last much longer in Atlanta, Austin, Tucson, San Jose or Portland than they do in Detroit, Chicago or Boston.
Mass transit ridership is up. Personal vehicle miles traveled continues to fall ( http://wheels.blogs.nytimes.com/2009/03/11/lower-gas-prices-are-not-increasing-driving/ ). The annual US vehicle scrap rate has been around 12.5m unit in recent years. It is reasonable to expect that sometime in the future the new vehicle sales rate will climb back up there, but I’m not looking for the damn to burst worth a sudden surge of pent-up demand.
California’s decision to jack up annual registration fees (which are based on vehicle value) and new car sales taxes is going to continue to be a drag on auto sales in the US’ largest auto market. Trading your seven year old Taurus in on a new one is going to mean going from around $200/year registration fees to around $600/year.
When sales rates do recover, it is going to be skewed towards modest profit margin vehicles … not the monster-cash generating bling-trucks of the 90s.
BTW, I was in the local NAPA recently and there were no lines. I asked the counter guy, and he says that business is ok, not great and not horrible. I’ve also spoken with a local repair garage which has a great reputation and they tell me their business is down quite a bit. People are only doing the absolutely critical repairs when in better times they would say “do whatever it needs”. Note: This is one of the shops which isn’t going to rip a person blind who says that!
I believe you mean “23.9 years” not “23.9%” for the turnover rate.
Car sales are going to rise over current levels… that HAS to happen. People will need to buy new cars eventually. Cars last longer than ever, but not forever.
Job security concerns and non-availability of credit are going to be short-term drags on sales. However when sales return the emphasis is going to be on value purchasing for a long, long time afterwards.
People will not buy as many vehicles or as large or as many high-end models.
The money that financed those third vehicles and high end models was available because people had savings in mutual funds and equity in their homes. That money and the comfort it provided are gone where Bernie Madoff is going… to Hell.
Money that was going for nice new cars (and lots of them please) will go have for rebuilding savings for some years to come. This will be especially true for the Boomers who had the largest amounts of disposable income but are approaching retirement age. Priorities are going to have to shift for them.
So, Hyundai, Honda, and Toyota are the winners here over the next decade. Basic transportation is going to sell better than BMW’s. When people buy it, “practical” is going to be the buzz word for quite a few years.
Average age increases.
http://www.motorauthority.com/average-age-of-cars-in-us-increases.html
I’ll pile onto the bandwagon. Until the layoffs slow down, I think people are too worried about the future to make any big purchases. Right now is the best time in years to buy a car, a house, or any other major purchase (if you qualify, of course, which is tougher these days), but people are waiting it out. Once the job situation is a little more stable, then i think showroom traffic will pick up.
Lumbergh21 :
March 12th, 2009 at 5:48 pm
I believe you mean “23.9 years” not “23.9%” for the turnover rate.
I second that.
A 23.9% rate means that most cars on the roads are unregistered.
A 23.9 times (=2390%) means at the current (unstable) rate, it takes 23.9 years to flush all the existing cars out of the system and fill with 2009 or later models.
superbadd75 :
March 12th, 2009 at 5:51 pm
I’ll pile onto the bandwagon. Until the layoffs slow down, I think people are too worried about the future to make any big purchases. Right now is the best time in years to buy a car, a house, or any other major purchase
Certainly not true for Canada. Car sales didn’t tank up here. It’s actually at record high in my province of Alberta. The dealership simply won’t deal on anything other than a big SUV. Zero discount for a lot of models; you have to pay MSRP.
And GM and Chrysler are still asking for bailouts from the Canadian government.
Lokki :
March 12th, 2009 at 5:49 pm
Money that was going for nice new cars (and lots of them please) will go have for rebuilding savings for some years to come.
I don’t agree. The Fed is determined to punish savers and reward borrowers by providing unlimited amount of loan at almost no interest rate. You simply don’t get your money’s worth of interest by being a saver.
It makes sense to be a saver only if borrowers have to borrow from savers, not the Fed. Then the interest rate will be market adjusted. A house flipper would then have to share some of his 50%/year profit to the saver at 15% interest. Thus there will be no bubbles. Some unsuccessful flippers will simply stop flipping and become a saver.
So, I tell every friend and relative. Spend your money (except for emergency fund), because the Fed is not on your side to protect your savings. Don’t fight the Fed. You cannot beat the mightiest military in the world. Join them; play the game.
“I do not see why cars cannot be kept running longer. My 8 year old Lexus and 10 year old Dodge Ram are doing fine.”
I can trump that. My 16 year old Ford Escort is still running and driving like brand new. And I live in the rust belt. It seems that the rust bug has been kind to this car, as it is barely rusted and rock solid. The only rust it has is just some pellets on the hood, and bubbling over the rear fenders. (Like every other early 90s Ford ever made). How is still running strong? I do this amazing little thing called taking care of it, and I don’t just junk it when the smallest thing does wrong just because “its old”. I hate how Americans are so wasteful. It is just like you said, because of the easy credit, when the slightest thing went wrong, people would just throw their car away and get a new one. Those days are over.
It’s ironic and weird to report that given the average US car is over 9 years old, that means it is about 2 years OLDER than the average car in what used to be Eastern (communist) Europe.
Does that mean the average Czech, (Ost) German, Hungarian and Pole has a higher standard of living than Americans?
I suppose it depends upon what your definition of “standard of living” is.
I’ve lived in the UK and adjusted to it; the Poles, Hungarians, etc., live a damn sight better than they did 20 years ago. Even in these troubled times.
Ukraine and a few other places not included, of course. (Seems like wherever it used to be the actual Soviet Union, isn’t doing so great, is it?)
23.6 years assumes that the total number of cars in the fleet is staying constant. But like with so many other things we probably overshot there.
Families that bought 3 and 4 cars, companies that bought a ride for every salesman. The market got to be flooded with late models from private and corporate sellers that are down sizing.
When replacing that old rust bucket in uncertain economic times the choose might be a between a new car or a late model low mileage former third family car at half the price. Would not be a hard choice for me.
This is an interesting list, is there any reason why the US would have 25% more cars than Australia, 35% more than Canada or more than twice as many as Saudi Arabia? All large, rich countries with limited public transportation.
menno, the thing is, the average Czech, Slovak, Pole, or Hungarian doesn’t need a car. He can get by just fine with public transportation. A car isn’t a necessity as it is in most parts of the US. Also, the majority of cars are sub-compacts and compacts. Not the cars that make the major bucks for Automakers.
Rust always wins.
Don’t be so sure. My 10 year old Ranger runs the salt covered roads of MI. and never, ever, gets washed. Not a speck of rust on it. It’ll wear out before it rusts out. It’s good for another 5 years, I think.
My fleet is 21 yrs old. I have amassed enough spare parts to keep them all going for at least another decade. If and when I replace them, it wont be with anything new.
I just bought a car in September, but if the deals get sweet enough, I just may buy again come autumn. I haven’t seen any rebates on Hondas or Subarus, but there are some great deals on Mazdas. I’m thinking either MX-5 or RX-8. Base RX-8 is 27k. Invoice is 25. 08s had a 4k rebate on them. Add in the Mazda owner rebate (Mazda 3 owner) and you’re looking at 20k for an RX-8. TWENTY THOUSAND DOLLARS FOR A NEW RX-8!! Yeah the fuel economy blows and the engine burns oil, but fuel is cheap (for now) and I can deal with checking and refilling the engine oil if the price is that crazy. Invoice on the base MX-5 is 21.5k. 08s had a 2.5k rebate on them. Add the Mazda owner bonus and it’s 18k for an MX-5. There isn’t really any selection anymore for 08s, but if the deals get hot again on 09s right before winter time, I may be heading to the Mazda dealer. Maybe not, because the 09 RX-8 and MX-5 are refreshed and may be in higher demand, but we’ll see.
If you really need/want a car right now there are some crazy good deals. Well equipped V-6 Fusions for $20k new, or a 4 cylinder manual tranny base model Fusion for under $16k. A “stripped” Fusion includes A/C, cruise control, remote power door locks, power windows, speed sensitive variable intermittent wipers, MP3 decoding CD player, dual remote powered mirrors and a tilt/telescope steering wheel. All for under $16k. Thirteen years ago I bought a brand new Volvo 850 with similar safety ratings and less equipment than that Fusion, and paid $26k for it.
An RX-8 for $20k? That is a screaming good deal, Demetri.
Back on topic, cars could last a lot longer than they do. If there are fewer used cars available, their values could firm up, and they’ll be less likely to be junked before their time.
Dynamic88: “My 10 year old Ranger runs the salt covered roads of MI. and never, ever, gets washed.”
Dirt, the miracle rustproofing compound!
t-truck: “is there any reason why the US would have … more than twice as many [cars per capita] as Saudi Arabia?”
One factor is that half of the adult Saudis–the women–are forbidden to drive.
superbadd75: “Right now is the best time in years to buy a car…”
Could be. My wife’s elderly cousin decided she wanted a new car and went to a Mesquite, TX dealer to get an ’09 V6 Fusion. She arrived at 10:00. The salesman claimed Fusions sell at window sticker price. She told him what she was willing to pay, based on Consumer Reports info. The negotiating went on all day. Even with the participation of two levels of “closers” she wouldn’t budge. Every time she threatened to go elsewhere the guys went into panic mode. At 5:00 she was allowed a loaner to go get some supper. Eventually they agreed to meet her offer; then she asked what they’d give for her ’96 Crown Vic. (A very low mileage garage queen.) By 9:00 they agreed to allow what she was demanding. At 10:10 she, the salesman and manager left the F&I guy’s office. The sticker was over $24K; she paid less than $17K before trade-in. A third off? Unbelievable! Seems like that would absorb holdback and any secret rebates. I have to wonder if there’s something fishy, but she’s a savvy, tough old lady. I wouldn’t haggle for ten hours.
@Michael Karesh; yeah, and the more we treat cars like airplanes instead of disposal cameras the longer they will last. As I said before, for $5000 in the midlife of a car (150K miles) you could easily extend that life for another 5 years or so.
There will also be people who buy new cars, but with current inventory, and a little care, you could easily slow the system down to 6 million sales a year.
Good news on TTAC? So now you’re lifting content from The Onion?
Not a lot of people are capable/willing to deal with their cars out of warranty. Especially if it’s a piece of crap Neon or Chevy Cavalier. While those cars may still be running, that’s not good enough for everyone.
“Not a lot of people are capable/willing to deal with their cars out of warranty.”
The average age of the US light vehicle fleet is over 9 years. That is the average, which implies that roughly half of the vehicles on the road are over nine years old (yes, I know the different between mean and median … but it is close enough in this case). Typical new car warranties are three to four years long. Thus, over half of the vehicles on the road are way past their original warranties and are even past the point of extended warranty service contracts the original owner may have purchased.
All told, probably over 3/4 of the vehicles on the road are past their warranty. Therefore, most people are in fact quite capable of dealing with owning an out of warranty car.
I guess I’m above average. I don’t think I have had a daily driver that was less than 9 years old since 1979. Currently, it’s a 1993 model. I’m thinking about getting another car. I have several cars under serious consideration — model years ranging from 1970 to 1996.
MBella :
March 12th, 2009 at 7:20 pm
menno, the thing is, the average Czech, Slovak, Pole, or Hungarian doesn’t need a car. He can get by just fine with public transportation.
Hm, I wouldn’t be so sure. Eastern European public transport isn’t exactly of the same grade as Western European public transport…
Does that mean the average Czech, (Ost) German, Hungarian and Pole has a higher standard of living than Americans?
No, it means everyone trashed their 15-20 year old car from the communist days during the boom years. Also, after decades of driving Skodas (which were pretty good compared to other stuff), Soviet cars and your locally license-produced Fiat/Renault designed in 1968, people were hungry for new vehicles. Also, many people either couldn’t afford to buy real estate (there was a crazy boom there too, but not as much crazy lending) or they already owned some, so they spent their money on cars.
“Pent-up demand” is a fable marketing departments tell to their bosses, and their bosses tell to the shareholders. Either there is demand or there isn’t. “Pent-up” demand is the people waiting in long lines Thanksgiving night outside Circuit City for bargains (ha ha remember those days?)- but the demand is not pent-up, it is present, else they would not be in line and moving as soon as the doors open.
Demand in the economic sense indicates a buyer who is willing to buy and able to buy (has the means). This demand is manifested by people buying cars. If people do not buy cars, there is no demand.
People can hold off buying new cars a lot longer than car companies can hold off people not buying them.
People are not buying cars because cars cost too much. $16,000 for a stripped low-end Ford is a ridiculously high price, unless we assume there is something heaven-sent about the MSRP sticker. The sticker is the la-la wishing price of car marketing execs assuming there is something called ‘pent up demand’ to justify their job existence for yet another six months.
To the high price, jobs are fading away left and right, pay cuts are happening all over. This is accelerating, even while MSRP has actually increased over the last six months. Sure there are some measly rebates, the same amounts we have seen in rebates for over 20 years, when cars cost a lot less. It’s time now for $5000 and $7500 rebates.
True, there were some true reductions on trucks last fall to reduce stock; those big reductions seemed to have eased with inventory. Let’s see what happens next fall when all the 2009s are littering the lots (alongside some 2008s) and the 2010s need lebensraum. I expect there may actually be some good prices then, even on cars.
But until jobs rise, not fall as they will over the next two year- until wages rise, not fall over the next two years, until car companies show profits, not increasing red ink, there can be no ‘turnaround.’
The Fusion described above is hardly a “stripped low end Ford” as John Horner correctly pointed out.
That’s the price of an optioned Focus with a small rebate. That would be too much money.
And given the median price of a new car is now $25,000 or so I’d say that was an excellent deal. [Especially for so many who claim to want the manufacturers to offer manual transmissions].
The value added by so much formerly optional equipment now being included as standard in the price: AC, power steering, power brakes, windows, locks,mirrors, cruise, etc etc etc hardly justifies describing the Fusion as being “stripped”.
Compared to a rolling condo like a Winnebago, I guess so.
I think the demand will spike again, but the wait will be longer than in the 80’s: cars are built to last longer, but many of those who have current leases will buy the cars they currently lease, eliminating one inventory backlog for the OEM’s. Others will go from the new market to the used, to eventually eat up the glut of high-quality used vehicles. Once that glut is used, people will begin to return to the new market. But we won’t, (and shouldn’t) see the 17 million mark for several years. When things start to pick up again, LEASE should be a dirty word. Residuals should be determined by a market. If you can’t OWN new, don’t DRIVE new, IMHO…
hazard: Hm, I wouldn’t be so sure. Eastern European public transport isn’t exactly of the same grade as Western European public transport…
You can get around anywhere just fine with public transport. Every town has buses, larger cities have trams and subways. It is very easy to get to a train or bus station, once you need to go outside of your city. Also, in cities, a car is a liability, because it is hard to park the damn thing. My uncle in Slovakia would never buy a car, not because he can’t afford it, but because it would be pointless. He can make it to work in 15-20min with public transport. If he had a car, he would have to deal with parking it, and he would likely end up walking more, and it would take him longer. People buy cars as a luxury.
Here in the US, I have to drive if I want to get to my job. There is no alternative. Even that takes me 35 minutes, and there are may people with commutes longer than an hour one way. The infrastructure here in the US makes cars necessary. People will buy cars again. The problem for automakers is, it will not be high profit margin luxo-barges and SUVs, but smaller more economical cars.
Dweezil, describing the low end Fusion as “stripped” was not my choice of word, it was the word choice of he whom you cite to show that a stripper is not a stripper.
All the new equipment that is standard in a car today- interval wipers, air, rear window defroster, power, auto, airbags, radio- that were options in the $1799 mid-size Maverick of 35 years ago are significant. But people bought cars then with 24 or at most 36 month loans. But salaries haven’t increased tenfold since then, so the loans are two or three times as long.
Which means affordability has not kept up- a couple thousand dollars worth of extra equipment notwithstanding.
All the extra ingredients and median prices of cars mean nothing if people do not think they are worth it. And people do not think they are worth it, or are afraid of committing to them at that price, and so sales are collapsing. The proof that they are overpriced is the collapse itself.
It’s easy for automakers to prove me wrong. Drop the price by another $5000-7500. I bet sales take off- if sales don’t take off then it was not about being overpriced after all, and I’ll take my lumps.
Of course, carmakers may not survive, but it’s not my problem if they can’t deliver a product at a price the market can bear.
“Especially if it’s a piece of crap Neon or Chevy Cavalier.”
Don’t compare those two cars together. It’s insulting to the Neon. I see plenty of old Neons on the road despite the fact that they sold over twice as many Cavaliers.
What about population growth? It’s 1% per year. All those people need cars.