Part of Carmageddon, but Consumers Call for It
The average age of cars and trucks on the road in the US rose again in 2019 to a new record of 11.8 years, IHS Markit reported today.
I entered the car business in 1985, the average age had just risen to 7.8 years, and the industry was worried about it, thinking the trend would have to reverse, and customers would soon come out of hiding and replace them old clunkers massively by new vehicles, and everyone would sell more and earn more. However, the industry's hopes of a sustainable turnaround in the rising average age have been sorely disappointed:
This rising average age is largely determined by longer-lasting vehicles – an inadvertent consequence of relentless improvements in overall quality that are challenging the automakers Forced into a fiercely contested market where automakers struggle to stay alive. In order to gain a foothold in the US, they must constantly improve their products. Latecomers who can not keep up will be left behind. US consumers are brutal.
This unintended consequence of increasing overall quality contributes to the dreadful industrial problem: the US is a terribly mature car market despite constant population growth.
1999, so 20 years ago, new vehicle sales reached a record 16.9 million pieces. This record was broken in 2000 with 17.3 million units. Then the sales went back. By 2007, they had dropped to 16.1 million units. Then came the financial crisis, GM and Chrysler went bankrupt, Ford went almost broke, and sales fell by 40% to 10.4 million units by 2009.
The recovery was steep, and in 2015 the time had finally come The record of the year 2000 was broken, but barely with 17.48 million units, and in 2016 the industry achieved another record of 17.55 million units. And that was it. The turnover has since disappeared. So far, data for 2019 suggests that sales are expected to fall below 17 million units, bringing the industry back to the level of 20 years ago (1999:
) In view of the longer average age of vehicles on the road across the fleet, even stagnant sales are leading to an increasing number of vehicles in use. So it's not that Americans have fewer cars altogether – far from it: they have more cars and these cars are older on average.
The number of vehicles in use (VIO) increased by 5.9 million units in 2019 compared to 2018, according to IHS Markit, a new record of 278.3 million vehicles. In other words, during the 12-month period, about 17 million new vehicles were added to the national fleet. and about 11 million units were removed from the fleet, either by shipment to the salvage site or by export to other countries.
What you see in the above table is the future supply for the used vehicle market. Used car sales are expected to reach just under 40 million units this year, or around 2.3 times new car sales.
The fact that the average age of vehicles in operation is on the increase does not mean that all people are affected by it, they stick to their cars longer. On the contrary.
Sure, we drive a car that we bought 12 years ago. It's in great shape, looks good, the six-figure mileage is just a small mistake, and we'll stick to it because there's no reason to get rid of it. We know other people in the same program. Millions of Americans do.
But other people have two- or three-year leases, and that's a booming business. More and more people are leasing. And when the lease ends, the old vehicle is returned to the leasing company, which owns the vehicle and then sells it at auction, where a dealer buys it and then sells it as a used vehicle to a retail customer. These vehicles are only two or three years old and often in mint condition.
Then there's the huge fleet or rental cars of about 2.2 million vehicles that are handled every few years to get into the used car market. Much of it through auctions across the country.
In addition, there are corporate and government fleets that operate at varying intervals, and these units end up in the used vehicle market.
So the rising average age That does not mean that Americans drive the same vehicle over a longer period of time – although they can and many do – but that there is a strong market and a strong demand for good older vehicles and people do buy and drive for a few more years.
But it's a problem for the automaker. They could sell many more vehicles – and I mean a whole lot more – if their vehicles would reach the end of their lives on average after eight years. However, our fussy consumers are no longer choosing this program. Quality is one of the factors that determines whether an automaker will succeed or die.
What remains for automakers to increase sales in this two-decade environment with stagnating sales? A tripartite industry strategy has emerged: switching customers to more expensive vehicles, eg. B. from cars to trucks and SUVs; Load the vehicles every year with additional extras, such as: B. driver assistance functions. And simply jack up the prices.
And automakers are doing this across the board, with the result that new vehicles have become too expensive for many Americans and they have stopped buying them, further increasing the pressure on sales. But Wall Street, which is pushing the automakers ever higher – because this is the money – has not yet figured that out.
Here are six charts on the used car market and my "Chart of Carmageddon" for new vehicles. Read .. . Increase in used car wholesale prices, decline in retail volume. New cars sink deeper into Carmageddon
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