Over the weekend Bertel reported on some depressing economic news, noting
Suddenly, automakers aren’t so sure anymore about all that pent-up demand that will bring back U.S. car sales back to their old glory… The big recovery has been postponed for a year or more.
But how much pent-up demand is there, really? According to Edmunds’ analysis of 12 Factors To Watch In The Industry’s Second Half, only about half of the sales lost between 2008 and 2010 were not lost forever to used cars, the inability to get credit and the “new austerity.” As a result, they calculate about 4.3m units of demand is “pent up.” But there’s a question of how accurate that estimate is, and beyond that there’s another question: what happens once the pent-up demand has been blown through?
Lacey Plache, chief economist for Edmunds.com explains:
Under normal circumstances, auto sales momentum would be difficult to achieve in the face of a slowdown in hiring and increased uncertainty about economic conditions. However, the supply shortages caused by the Japanese earthquake are far from normal. We estimate deferred demand resulting from these shortages and the associated price increases to total more than2.5 million units at a Seasonally Adjusted Annualized Rate (SAAR) of sales. In May, the SAAR of 11.8 million units fell short of the 2011 forecast of 12.9 million by 1.1 million units. June’s SAAR of 11.4 million units underperformed by 1.5 million. July’s SAAR also will likely increase deferred demand, although by less than May’s and June’s contributions.
Of course, it is possible that automakers will not be able to recover some lost sales if these sales represent lost demand – for example, if consumers decide not to make new auto purchases due to increased concerns about current and future economic conditions. However, the amount of lost demand is likely to be minimal in this case. Typically, lost demand for new cars would occur from buyers defecting to the used car market. In recent months, however, used cars also have been subject to tighter inventories and higher prices resulting from increased demand for Japanese and fuel efficient cars by consumers and dealers.
The key challenge for auto sales momentum will come when deferred demand from the recent shortages is depleted. We expect the lost sales to be largely made up by late fall. At that point, employment and income growth, which drive consumer spending, will be more critical than ever for driving auto sales. Ironically, the expected upcoming rise in auto sales from deferred demand may be the key factor for sparking the jobs growth needed for auto sales momentum to continue.
With estimates ranging from Edmunds’ 12.9m units to about 13.5m units (with many on the low end of that scale), 2011 should be stronger than last year’s 11.6m unit market. But if job creation and housing prices stay weak, and especially if the debt ceiling deadlock affects the US economy through higher lending costs, there’s still a chance that this year will se only modest improvements on 2010’s market. In any case, the economic fundamentals will have to come back in a big way if the auto industry ever wants to return to the “old normal” of 15m+ units per year.
this past week I delivered a new car to a fella that today got a $750 bump on his GM Card that he can’t get. now he rides around in his new car telling everyone GM stinks. your article is misnomed…it’s “fed-up demand” Eddie.
What does “$750 bump on his GM Card that he can’t get” mean?
I’m not having a go or anything, I just don’t understand the meaning of this.
incentive that started day after he took delivery. got a new ride, opened mail next day and went from well satisfied to quite irritated.
Our Honda Civic 1996 Hatchback recently turned over 140k miles of a hard life. We replaced it with another used car. I took it to a charity auction place, expecting it to be auctioned for scrap value due to a failed head gasket, need for a suspension overhaul, dents on every body panel except the hood, and overall condition of 2 on a 10 point scale (10 highest). It was barely driveable.
Imagine my shock when someone bought it for $1575. $1575!!!
Wow! I bought a 1993 Civic for $1000 last year. It has 200k on the clock, and recently had its head gasket replaced. Looks like I got one heck of a bargain.
“Fed Up” demand is right.
I had to buy a new van for my wife who wanted something bigger for the kids.
Every time I buy a car, I always feel like they are grossly overpriced, and never worth nearly the cost over keeping what you already have.
Of course, we buy only every 5-6 years (own a car about 10 years on average with two cars), and this is the first new car since 2000.
yup. the marketers factor price backwards from “amount loan-able” x the expected service life of the car. It is not “cost of production plus a profit”.
You want to know what the pent up demand for new cars is?
Zero. Zip. Nada.
The sales numbers from 2003 – 2008 were based on overproduction, an exceptionally laissez-faire credit market, and the subsidization of over a dozen unprofitable brands along with thousands of unprofitable dealers.
The only way the market will revisit those past levels is if…
A) The credit market is willing to support a predominantly sub-prime consumer market.
B) Americans are able to clear their tattered credit records. (This is the biggest issue of all.)
B) Employment returns to pre-recession levels.
C) Wage growth returns to historical levels.
There is no pent up demand for new cars any more than there is pent up demand for trips to Paris.
+1
Pent up demand only occurs if people have the money and are hanging on for the right product. But people don’t have the money and/or can’t get hold of the money. In which case people tend to make do with what they’ve got, buy a used car, or use public transport.
And as Mr Lang points out, unless there is a turn around in the economy (which mark my words is not going to happen for a long time), there will be no change.
11-12 million SAAR is the new normal for a long time. Any compny that makes plans based on Edmunds is going to be needing a bailout soon.
Bingo. As I mentioned in my story below about my attempt to buy something new, if someone wants to earn my business they’re going to have to seriously step up.
“In which case people tend to make do with what they’ve got, buy a used car, or use public transport.”
Or they can spend money they don’t have (borrow) on things they don’t need to impress people they don’t like. Isn’t that the American way? lolz
The only way the market will revisit those past levels is if…
A) The credit market is willing to support a predominantly sub-prime consumer market.
That’s already happening. The subprime auto finance credit market is heating up, and securitization is making a comeback. If anything, the downturn should help the credit market for cars, since the marginal borrowers are less likely to be tapping out their credit lines with mortgage debt.
In my view, the main threat to the long term SAAR is the aging population. The elderly drive far less than average, so they need to replace their cars less often. The average age of the fleet is going to keep increasing, and there’s nothing that anyone will be able to do about that.
“In my view, the main threat to the long term SAAR is the aging population.”
I think there is *also* a loss of interest in the young population. Many teens are perfectly happy to borrow mom’s minivan. New regulations in California are putting more restrictions on young people driving anyway. Many in collage are too poor to buy something even if they wanted something. People finished with education but still unemployed and living at home aren’t exactly in a financial position to buy their own vehicle, don’t need one to commute to their (non existent) job, and can still borrow their parents’ vehicles if the need arises. People under 30 making a good wage and living in a city like NYC or San Francisco are just as likely to use ZipCar or just take the public transportation. “Car culture” is truly dead among the young.
@Sunnyvale-Typical rhetoric from a west-coast lib. I am 27, and could not survive or provide for my family without a newer vehicle. Anyone who thinks little toy trains or light rail is a ‘solution’ to rising car/fuel prices needs another toke; and I personally know several people who think the same. The automobile is the epitome of freedom, despite the powers that be dictating otherwise, and as long as there are people who think like that, you would be surprised at the resolve of freedom loving CAPITALISTS.
@AcuraAndy: I’m not telling you my own preferences. I was just making an observation. The original post was about demand for vehicles and I was making the point that demand for vehicles among young people (at least near me… not any of those “capitalist” people) is far lower than what it was when previous conditions prevailed. I’m doing my part, though, and bought a brand new Porsche (with stick shift) less than 2 years ago; happy now?
@Sunnyvale meant no offense with that comment, just wanted to reiterate that it isn’t only ‘old’ people who want new metal. And with the Porsche, well, apparently you have done better than I have so far financially. And, with all of that said, you are right, sort of.
I’m in the demographic you’re talking about (take BART to work, etc.) and we certainly don’t drive as much, but we still need cars of our own. I’d say the trend now is one car per couple, if one or both people can take mass transit to work (which only really works in SF, Oakland, and Berkeley). It may not get much use for commuting to work, but you need it if you want to go anywhere else. Housing is a bigger concern though, so most of my peers buy cars that cost little more than $15,000 (new Corollas or Fits, or used examples of more specialized vehicles). Saving 20% for a house down payment isn’t easy in the Bay Area.
I think that’s how cars should be: something you don’t need for day-to-day life, but which give you the freedom to go wherever you want on the weekends.
Count me as one on the pent up side. Sharp income growth throughout the recession, but instead of my usual 6 year replacement cycle I’ve stretched it to 9 and counting. But that’s also because too many other investments have been too damn cheap to justify throwing $30k at an upgraded hunk of metal with a few more features.
I think that there is an enormous pent-up demand for new cars and trucks in America. The problem is that the limiting factors like potential loss of income, continued unemployment, and the ever-increasing cost-of-living put a damper on ever acting on it.
They still sell a lot of cars in America every year. If conditions were better, they could sell a lot more. And until conditions get better, they are lucky to sell as many as they do today.
+1 Steven.
My 6 year old Audi is doing just fine (knock on wood), and I recently toyed with the idea of trading it in for a 2011 GTI. So I spoke with a dealer who tried seriously lowballing me on my Audi.
I laughed at him and told him that I’d be insulted if it weren’t “just business”, but that I didn’t need to trade it in and I didn’t need another car. He looked at me like I was an alien.
Long story short: it is going to take some serious incentives and real numbers on my existing car to get me to trade it in.
I’ve recently been tempted with the idea of replacing my Impala with a new one, considering what my new commute will be in about three weeks, but my 2004 runs just fine, has no issues I can detect and am about to have it checked over and am even going to open the hood for a change and look over stuff that I have trusted my mechanic and the dealer to, as we’re taking a long weekend to St. Louis in mid-late August.
So, for now, buying something new simply is not on the horizon for us either. Even if something awful happens to it, I still have our MX5 as a backup, and I survive an hour on the highway easily, and will do so for awhile, if necessary.
Our CR-V, although getting a bit long in the tooth and being noisier every day, shows no signs of any trouble. So there you go.
No new car for us…yet!
Guessing by past sales records as to what is “missing” is absurd. I agree with Mr. Lang that ridiculously easy credit and home mortgage “lines of credit” opened the tap for anyone breathing to get a new car. Excess production led to those $2000 plus rebates becoming the “down” payment. There is no demand with out the where with all to pay!!! Additionally, all those trucks bought during the 17 million unit years are almost worthless as trades (due to horrible gas mileage), so the effective cost of a new vehicle has risen for these potential buyers.
No job, No credit, No down payment = NO SALE.
I’m itchy for a new or “new to us” car. My wife and I have been sharing one car for six years now. A 98 Accord with 120K it runs great.
We both work decent jobs-and I’m getting close to buying a Rav4/CR-V/Forester as we’ve gotten stuck in the snow too many times in our driveway.
I’m just struggling to separate myself from $20K+, plus $1000+/yr insurance and gas etc-so I keep putting it off.
@ Zackman…. Full disclosure..Buying a new Impala sounds like a great idea to me. After all Impala and Camaro sales help my pension.
However,in fairness, if it ain’t broke, don’t fix it. While I love my Impala the resale isn’t exactly stellar. A 100 mile commute will be hard enough on the resale of your 2004. You have already ate a large chunk of deprecition. So pile the miles on the 2004, its money in your pocket.
The upside to the Impala is low total opperating cost. The downside is deprecition.
Who needs shiny door handles anyway?
Mikey’s wisdom is the new reality for millions of people. Since the recession many people are less status conscious (voluntarily or not) and have decided the car they already have will do just fine. Since modern cars are about as reliable as an appliance, why not treat it like one? You don’t replace your washing machine because you are bored with the color.
Anybody thinking the new car sales numbers are reverting to 2005 levels is probably looking forward to a spike in new home sales too.
Not gonna happen.
Hasn’t the skyrocketing prices of used cars shown us the game. There is demand, at price points below the ever increasing prices of new cars. The $25,000 Accord and the $20,000 Fiesta are about $5,000 too high.
In better times, finance could bridge the gap. But, that is no longer possible.
Of course our elders and betters want to to ride the bus, or a bike, so they will continue to load on sales taxes (CAFE my Friends, is a sales tax) and they will hope you peasants get used to your station in life.
I’d be more interested to know what the pent up demand is for repair parts.
I’ve got a couple of cars that I plan to nurse along for a while. I just found out I can get a Jasper rebuilt motor for my Jeep GC for around $3000 installed. I don’t need it yet, but it’s nice to know I can fix this car cheap.
The problem with new cars is the cost. As much as I love the new Grand Cherokee, I refuse to part with $35k to get one.
New car prices have risen without regard to stagnant salaries. That trend is not sustainable. Either salaries and employment rise, or new car prices fall – there is no other way.
-ted
A third possibility is that salaries continue to stagnate, new car prices continue to rise, and new cars become something only for the very wealthy.
FWIW, when my company closed in 2009, I hired on with the new company that bought our old one, albeit a 20% pay cut and no benefits. When the banks closed my wife’s employer, she then went to the new reconstituted company (post-bankruptcy), she lost her seniority and we got a new health insurance plan that is 50% higher than the old one.
A month before the layoffs and buyouts, we purchased a 2009 Pontiac G6, with a 4 cylinder engine, because the city fuel mileage was much better. Of course, when we were looking at cars, gasoline was still in the $4 per gallon range, spurring our decision to buy the smaller car with the smaller motor. CAFE was never a consideration by any stretch of the imagination. Had we known what was about to happen to us, I never would have bought a new car. Not a month before my layoff, I was told I had nothing to worry about, jobwise. HA!
Between my pay cut and her new insurance, I figure collectively we’ve lost about 20-25% of our purchasing power. Since home values in my area are in the toilet (this is the second year our taxes have gone down, and we live in a very good school district) we have no leverage vis-a-vis home equity loans. Not that I would even go that route, but you see what has happened.
Would I like to buy a new (or even a new to me) car? Hells yes. But until somehow, some way my situation improves radically, file this under: aint-gonna-happen-anytime-soon.
How exactally do you measure “pent-up demand?”
I would have seriously looked at cars back in the Sumer of 2010 if my Master’s degree had brought me a serious pay bump instead of a “financially sideways promotion but a job with way more responsibility.” I’m planning a vehicle purchase next summer but you can’t even count on me to buy a new one, might go used. Am I “pent-up”? Or would only GM try to count me as a sale already? :P (Sorry I had to slip in that wisecrack.)
The demand is there. The ability to act on it isn’t. Maryann Keller, an automobile securities analyst, once said, “I have pent up demand for an emerald, but if my husband has anything to say about it, it will remain pent up.”
Ultimately, new vehicle demand is a function of scrappage of existing cars and trucks (rates are trending down because of improved quality) and incremental demand for transportation (which is a function of population growth and finances). Unfortunately, most people’s balance sheets are terrible. However, evidence of the demand for transportation is shown by the narrowing of the spread between new car prices and late-model used cars. In real terms, the amount you have to add to your trade-in is lower than during the boom. Once people get their balance sheets back in order, demand will soar, although perhaps not to previous peaks.
The “new car” culture has changed completely, and it won’t be back anytime soon. Buying a new car has always been incredibly stupid financially, but it kept on chugging because of creative financing and status seeking buyers despite swelling price tags. That’s now all hit a wall, the “Home ATM” has stopped spitting out money.
I’ve never understood how the average middle class American justified buying new cars as a normal purchase. A new $30k-$40k SUV was almost an entitlement for all but the poorest families. I can’t tell you how many I know that have a new car that’s close to their annual salary. My personal opinion is that no one with a net worth of under a million dollars has any business buying a new $40k car.
Some Americans have wised up for the better and have become more frugal, but my more cynical side says that many Americans aren’t buying new cars because they’ve simply been cut off from a debt-fueled lifestyle. They’d spin the wheel again in a heartbeat if the House would let them.
I don’t know that I agree with the conventional wisdom that buying a new car is a stupid financial move. If you keep a new car for say 15 years, the annual cost of ownership becomes pretty reasonable.
I know people who insist on buying used, 2-4 years old. They keep telling me I’m a fool for paying depreciation. They tell me that every 4 years when they trade in their used car. If I keep my new one 15 years I won’t pay anymore depreciation that they did.
I wonder what “pent” means? Can it only be pent up – can you be pented?
Can you say :
” There’s a whole lot of penting going on here and it stops now!”
“If it weren’t for the Pent we would’ve won easily”
“I used to go places – meet people – now I just pent.”
Past tense of “pen” — to enclose or confine.
“There’s a whole lot of penning going on here and it stops now!”
“If it weren’t for the Pen we would’ve won easily”
“I used to go places – meet people – now I just stay in a pen.”
The better classes likely add a “house” after “pent.”
Ruffians and commoner scum filth vermin… the masses, tend to pant… and drool.
But my view from the shanty IS slanted and I still await the lusted-for drop in used vehicle prices, specifically a long-wheel-base 6-cylinder cargo van so as to provide an affordable retirement community for one.
If very lucky I may be able to find a small cheap acre or two in the boonies with potable water and electrical power so I can hide from the jack-booted thugs and grow some veggies and grow a few chickens for eggs and eat the ones that die and generally hide from the masters and their lackeys.
And the “no trespassing” signs will be backed up by a growling Old Coot Critter.
BAH!!!!!!!!!!!!!!!!!!!!!!
Buyers are worried about their debt loads. As their neighbors lose their jobs, children go unemployed, schools see cutbacks, seniors worry about their pensions – those with money are paying off their debts.
Not signing up for more. If they have a car that runs – they will rather keep it on the road until their debt is halved or completely eliminated.
Folks with incomes over $70,000 have seen the highest debt load increase over the past five years. So, these folks are not in the market.
How much pent-up demand is there? If we look at impulse cars, we don’t see much movement here. Folks are focusing on buying dull reliable cars they can live with for a decade. Look at the colors and you see dull reliable colors – few impulse colors.
We are in a economic recession and the US is bankrupted, regardless of what the dim-witted politicians claim. Those people live on fraud so denying reality is their norm. Check out the folks who invest, and you will see reality. We are screwed for a decade, people. Until Congress takes a chainsaw to spending, we will not see any improvement in our economy. At 2% quarterly growth, it will take us a decade to see any daylight.
I’m quite happy with having only a very modest payment on our MX5 that we can pay off anytime and “0” credit card debt. Add to that an also very modest mortgage that we could pretty much eliminate if we had to, we’re content with that, compared to those who went crazy years ago buying twice as much home, cars and gadgets they can no longer afford or have lost.
When we moved to Ohio 19 years ago, the trend had already started of buying far over and above what was really necessary. Us? We did not buy a new house, but an 11-year-old one, well within our financial ability to afford and still allowing us to save. Cars? We had our Plymouth Acclaim and Chrysler E-Class, both paid for, and stayed with them for years.
We didn’t buy a new car until ’99, but kept what we had and bought used when necessary.
Do I have a “pent-up demand” for a new car? Sure, who doesn’t? But in this environment, we prefer to save our money and live far below our means, because circumstances can and do change in a blink of an eye. Take nothing for granted!
Steven Lang +1. I’d hoped we would hear from several of our other auto retailers here, but not so far; I’ll check back later.
We got a 2009 Accord last August, replacing a 200,000-mile 1999 Accord, which was handed to the daughter. There’s no chance we’ll be in the market for a car again anytime soon.
There is definitely demand for cars, but not necessarily new cars. Can’t speak for others, but I got spoiled by recession prices for used cars and I’m waiting for those used car prices to come back down to reality before buying. What is needed to stimulate new car demand is some new must have feature like new attractive styling, lower weight, high performance direct injection engines, diesel engines, automated manual dual-clutch transmissions, etc. that you just can’t find used.
In that case, let me recommend to you the Hyundai Sonata Turbo! One of my poker buddies bought a red one earlier this year and allowed me to drive it on I-10. It is fantabulous! Power to weight ratio is better than my 2006 Mustang 4.6 GT!
I would love to get a Sonata Turbo and trade our Sienna for it (we’re DINKs), but, alas, my pent-up demand is going to remain pent-up since there are no Sonata Turbo’s to be had.
Those dealerships in my area that have one in stock are mighty proud of them. Don’t want to sell the one they have. They will take orders for one, and then you wait, and wait and wait.
I drove a 1947 Mercury for 14 years, then a 1966 Chevy pickup for 17 years then a 1939 Ford everyday for 16 years 11 months. Now I split my driving time among a 1931 Ford, a 35 Ford, a 59 Ford and a 60 Ford pickup. I also drive my newest car, a 66 Chrysler, but rarely.
There are lots of guys like me. I’ve never bought a new car and never will.
Thank you for supporting the US economy.
Final demand, pent up or otherwise, is kinda irrelevant when the government is ready, willing and able to funnel tax dollars forcibly extracted from taxpayers into the insatiable maw of GM (don’t call it Government Motors) and Chrysler.
If you’re a taxpayer, you are paying for the capacity to produce new vehicles by these companies regardless of whether you (or anyone else) will enjoy purchasing and owning them.