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The new "normal" for U.S. auto sales



December 01, 2008 – Comments (6) | RELATED TICKERS: GM , F


The "Big 3" automakers are appealing to the government for aid to help them last until 2010 when they believe that the recession will be over and auto sales will return to a "normal" level. Unfortunately, they may be overly optimistic about what that normal level is for U.S. auto sales.

I wrote about how financial magic caused auto sales in the United States to balloon to an unsustainable level back on August 1st:

Just like housing, financial magic drove auto sales to a height that they never should have reached

It was not just cheap leasing that cause auto sales to soar, cheap credit in general was as much responsible. CNN Money ran a great article on the subject this weekend:

Detroit's auto bubble pain - Automakers are suffering because sales were artificially boosted by cheap credit and the Big Three thought this could last forever.

The best part about the article is the graph that shows the relationship between new driver's licenses issued in the U.S. and auto sales. The gap between the two widened dramatically over the past decade as cheap credit encouraged consumers to buy new vehicles that they didn't really need.

Light vehicle sales in the United States averaged an amazing 16.9 million vehicles per year from 1999 through 2006. Prior to that period, annual sales only crossed the 16 million unit barrier once. During this time period the number of licensed drivers in the U.S. grew by only 1.1% annually. In 1998 the United States had approximately 12 million more vehicles than drivers. That number ballooned to 34 million in 2006.

People were buying new vehicles because they wanted to, not because they needed to. Cheap credit and an imaginary feeling of wealth caused by ballooning stock portfolios and home values fueled an unsustainable period of overly robust auto sales.

It is difficult to pinpoint what the new trend level for U.S. auto sales will be, but it certainly will be lower than what we have experienced over the past decade. In fact, there are so many new vehicles floating around out there now that we may experience a period of sales that are lower than what the normal auto sales level will ultimately settle at, at least until consumer confidence rebounds significantly. J.D. Power is currently estimating that auto sales in the U.S. will not reach the 16 million unit level again until 2012 at the earliest. Unfortunately, I feel that prediction may be overly optimistic.

This United States has been a hugely important market for all automakers, not just the Big 3. All manufacturers, especially the Big 3 Japanese, Toyota, Honda, and Nissan, will feel the pain of U.S. auto sales. Keep the fact that light vehicle sales may not return to the level that we have seen for the past decade for a long, long time when considering investing in an automaker.


6 Comments – Post Your Own

#1) On December 01, 2008 at 8:33 AM, TMFBent (99.57) wrote:

But hey, Congress can mandate a fix by handing them a check and at the same time forcing them to sell unprofitable electric cars and less profitable gas-sippers, right?

Of course, some of these work as loss leaders if you can get people to finance them, then sell off the loans. Ever try and pay cash for a car at a dealership? There's a reason they don't like it.


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#2) On December 01, 2008 at 8:59 AM, abitare (29.90) wrote:

FYI - Guess who is the latest firm seeking to jump on the Bailout gravy train?

Electric car start up Tesla Motors.

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#3) On December 01, 2008 at 9:00 AM, abitare (29.90) wrote:

Here is the link:

Tesla Motors Bailout ?


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#4) On December 01, 2008 at 11:39 AM, eldemonio (98.24) wrote:

Consumers are realizing that you can only drive one car at a time. 

How are companies affecting this slowdown?  Companies are slowing fleet growth and fleet turnover.  Many companies are also looking at slowly changing their fleets to more fuel efficient vehicles. 

Ford, GM and Chrysler boast of fuel efficiency in the mid 20s - most fleet managers are not going to settle for that.  Although gas prices are low right now, the raping we took this past summer is still fresh in most fleet managers' minds.


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#5) On December 01, 2008 at 7:23 PM, briyan (< 20) wrote:

Interesting article here, thanks for posting!

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#6) On December 01, 2008 at 10:34 PM, Option1307 (30.45) wrote:

That graph pretty much sums up our entire economy and shows why we are doomed. We have been buying stuff just for the heck of it, not because we needed it. Now that this is no longer the case, this is going to crush just about every industry.

Great post, thanks for the old link too Deej, interesting article.

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