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Wednesday, August 09, 2017

This One Chart Perfectly Explains Why The Auto Market Is Doomed

Earlier today Bloomberg posted the following chart comparing new vehicle sales in the United States to scrappage rates of old clunkers. Now, what should immediately catch your eye (even without the huge red circle we felt compelled to add), is the fact that new car sales have been massively outstripping scrappage rates for the past 5 years.

Of course, as many of you will undoubtedly note, there are plenty of legitimate reasons why new car sales may outstrip scrappage rates in certain markets. We completely agree...but, unfortunately, none of them apply to the U.S. automotive market.

One reason could be that the market is simply under-penetrated. That said, with a fleet of ~265mm light vehicles on the road today vs. a driving age population of only ~255mm people, or just over 1 car per person, we would say the market is fairly penetrated.

Another possible explanation for this phenomenon could be population growth. Taking a look, we find that new car sales outstripped scrappage by about 5 million units in 2016 which, on a base of 265 million vehicles, implies population growth of 1.9%. Unfortunately, the U.S. population is growing at exactly one-half that rate...

Which leaves us with one remaining explanation: a massive debt and lease-fueled auto bubble that has been sparked by a ridiculous buying spree courtesy of everyone with a pulse suddenly rushing out to trade in their 10-year-old Maxima for a brand new BMW....because you can 'afford' it so long as you can get approved for a 0% interest, 8-year loan which pegs your monthly payment at that magical $400 mark...



Anonymous said...

So my friends (2) who sell cars about to lose income in the next year or so?
They are my only friends who are doing well!

Anonymous said...

People (Normal working class) Cannot afford the High Prices

That will catch up to the industry and Bite them in the ass
eventually ........and they DESERVE IT !!! for Raping us...

What the hell is a car going to cost in 10 yrs ? / 20 yrs ??

Anonymous said...

I saw this coming and traded my 186,000 milePrius in for a 89,000 one that was 3 years newer. Cost me under $10,000. The first one I bought under the cash for clunkers program. Smart buyers need to be prudent and leasing a more expensive car for a smaller monthly payment is not a smart ideal. Has anyone noticed the number of Mercedes and Audi cars (and other luxury brands) are suddenly on the road?

I would have kept the first Prius but my mileage has been getting only 44 mpg from the original 55 mpg and I did not want to purchase a $2000 battery.

This is not the dealer's fault. It's the buyers fault for letting themselves to be led into this.

Anonymous said...

Talk to Dorsen about your Prius.

Anonymous said...

Looking back on the chart, business seems to be as usual today, and with Trump bringing back our jobs, maybe it's time for people to upgrade their junkers after a long failed Obama Administration.

Trump 2020!

I see nothing but prosperity coming our way!

Anonymous said...

So what? Let it crash. I will by another used car for cheap.

Anonymous said...

Companys are Giving you Less / Charging you More !!!

Vehicles today are Overpriced crap with a name slapped on
them..........Last of the good ole days was the 70's !!!!

Mechanical was the way to go / too much electronic crap
were it does Not belong on todays Junk ........costing tooo
much for crap Not needed..........Thanks to your GOV'T

Anonymous said...

I can't afford what they want for a new car or truck and I don't want to be tied up for up to 10 years with payments. Because of this, I buy used. Used car prices are now as much or more than what new car prices used to cost. If I want to have a car, that is my only choice. I refuse to pay 30K or more for a new car or truck. The prices are outrageous!
Leasing a car or truck is also a bad deal, still have to pay taxes and tags as well as upkeep. You don't own the car and you are limited on the amount of miles you can drive per year. I had one neighbor who had their car parked for months because they has reached the limit of mileage on their lease agreement for the year. All I want anyway is just basic transportation, nothing fancy. A lot of these new cars make you pay for electronics and features I don't need or want like a backup camera or navigation or Blu tooth devices.

Anonymous said...

Mechanics all know that all the cost causing crap under
the hood is NOT necessary or needed....
We don't need NASA spaceships we need Real vehicles like
the 70's on back when Quality was much better and costs
much lower.....
The Gov't went Overboard on mandates and too much plastic
and unneeded electronics controlling what should be mechanical like it used to be....
Otherwise Noone will be able to afford new vehicles that
are coming out.......
There is a saying > Keep it simple stupid > so don't over
complicate and over engineer what is Not Needed and Cost too Much > we are not all Multimillionaires !!!!!!!!!

Anonymous said...

Companies will just get BAILED OUT again if needed
But WE Won't what are we going to do ????