Part of Carmageddon, but consumers demand it
The average age of passenger cars and lorries on the road in the United States reappeared in 2019, to another record of 11.8 years, IHS Markit reported today.
When I entered the automotive industry in 1985, the average age had just crossed up to 7.8 years, and the industry was fretting over it and thought the trend would have to reverse and customers would soon come out of hide and replace the old clunkers with new cars massively, and everyone would sell more and do more. But the hope of these industries for a continuous reversal of the evolution of the increasing average age has been bitterly disappointed: total quality, forced on car manufacturers by finicky customers in an extremely competitive market where car manufacturers are struggling to stay alive. To do so in the United States, they must constantly improve their products, and stragglers who cannot compete are left insecure on their way. American consumers are brutal.
This unintended consequence of increasing overall quality contributes to the dreadful industrial problem: the US, despite a constant population growth, is a terribly mature auto market.
The recovery has been steep and in 2015, finally The old year 2000 was broken, but barely 17.48 million units, and in 2016 the industry went out a record of 17.55 million units. And that was that. The sale has been fizzled since then. So far in 2019, the data show that sales are likely to fall below 17 million units, according to my own estimate, and bring the industry back where it had been 20 years ago in 1999:
Yet, given the longer average age For the vehicles on the road all over the fleet, even stagnant sales provide an increasing number of vehicles in operation. So it's not that Americans as a whole have fewer cars – far from it: they have more cars, and these cars are on average older.
The number of vehicles in operation (VIO) in 2019 rose by 5.9 million units from 2018, to a new record of 278.3 million cars, according to IHS Markit. In other words, during the 12-month period, about 17 million new cars were added to the national fleet; and about 11 million units were removed from the fleet, either by being sent to the bear or being exported to other countries.
What you see in the diagram above is the future of the used car market. Used vehicle sales are likely to be below 40 million units this year – so about 2.3 times the sales volume for new vehicle sales.
The fact that the average age of the vehicles in operation is rising does not mean that all people hang on the car anymore. On the contrary.
Sure, we drive a car we bought new 12 years ago; It's in good shape, looks good, the six-figure mileage is just a blip, and we'll hang on to it because there's no reason to get rid of it. We know other people on the same program. Millions of Americans do it.
But others have two-year or three-year leases, and this is a thriving business. More and more people are renting. 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 car to a retail customer. These vehicles are only two or three years old, and often in the minimum condition.
Then there are the big fleet or rental cars of about 2.2 million vehicles turned over every couple of years or so to get into the used car market, much of it via auctions around the country.
In addition, companies and government fleets are being transferred at different intervals, and these units end up in the used vehicle market.
So the growing average age does not mean that Americans drive the same vehicle for a long time – even though they can and many do – but there is a strong market and demand for good older vehicles, and people buy and run them for a few more years.
But that's a problem for car manufacturers. They could sell a lot more cars – and I mean a whole bunch more – if their vehicles on average reached the end of their lives after eight years. But our fresh consumers don't go for this program anymore. Quality is one of the factors that determines whether a car manufacturer should do so or whether it will die.
What's left for car manufacturers to increase revenue in this environment by two decades of stagnant unit sales? A triangular industrial strategy has emerged: shift customers to more expensive vehicles, such as from cars to trucks and SUVs; load your vehicles with multiple treats every year, such as driving assisted features; and jack up the prices clean and simple.
And car manufacturers have made it over the table, which means that for many Americans, new cars have become too expensive and they stopped buying them, putting further pressure on unit sales. But Wall Street, which continues to push car manufacturers to go farther and more upscale – because that's where the money is – hasn't figured this out yet.
Here are six charts in the used car market, plus my "Map of Carmageddon" for new cars. Read .. . Used-Car Wholesale Prices Surge, Retail Volume Drops. New Cars Sink Deeper into Carmageddon
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