Autoline on Autoblog with John McElroy
HOW COME FEWER AMERICANS ARE BUYING NEW CARS?
Shhh. Don't tell the car companies, but every year a smaller percentage of Americans are buying new cars.
No, this has nothing to do with the current slowdown in the economy. It's part of what I see as a disturbing trend. More on that in a moment.
The problem is that annual new car sales have been stuck in the 16 to 17 million range for nearly a decade. I call it a problem because the population of the U.S. continues to climb by about 3 million people every year. In other words, at the same time car sales have been flat for a decade, the population increased by more than 30 million people. So how come if we have so many more Americans, fewer and fewer of them are buying new cars?
John McElroy is host of the TV program "Autoline Detroit". Every week he brings his unique insights as an auto industry insider to Autoblog readers. Follow the jump to finish reading this week's editorial.
In the 1970s, typically 7% of the population marched into a show room and bought a new car every year. In the 1980s and 90s, that fell to about 6%. Last year it dropped to 5.4%. It varies from year to year, but the trend is unmistakable.
Make no mistake, people are buying cars. But they're buying used, not new. In the U.S., the used car market is nearly three times bigger than the new one. Last year used car sales probably hit around 45 million vehicles. That's a massively huge market and so everyone's getting in on the action. New car dealers now sell more used cars than new ones. They sold over 19 million last year. And they make more profit selling used cars than selling new ones.
Even the automakers are cashing in on this trend. Most of them now offer certified used cars, some with amazing success. General Motors, for example, started offering certified used cars in 2000 when it sold about 20,000 vehicles. Last year, GM sold over 500,000 certified used vehicles. In fact, if they broke it out as a separate brand, "Certified Used" would outsell every other GM brand except Chevrolet.
Another key reason why fewer new cars are sold is that people are holding onto their old ones longer. Today, the average age of passenger cars in the United States is over 9 years, the highest it's been in the last half century. The average truck is nearly 7 years old.
The good news, of course, is that people can hold onto them longer because today's vehicles last longer than they used to. When I was growing up, cars rusted out in just a few years-in the Snow Belt, where we throw salt on the roads, you could literally watch them dissolve in front of your eyes! When the odometer rolled over 50,000 miles you knew it was time to get a new one. Today, cars can easily hit 200,000 miles provided you perform proper maintenance.
People also have a lot more choices today as to how to spend their money. Computers, internet access, cable television, cell phones, MP3 downloads and video game consoles are more attractive to a lot of people than taking on the burden of a monthly new car payment.
But I suspect the real reason that fewer Americans are buying new cars is because they can't afford one. The American middle class is getting squeezed by the forces of globalization, and this is going to have a significant impact on the auto industry.
The people who are left in the new car market have higher incomes. They're spending more money on more expensive cars. This is a key reason why the luxury segment has grown so much in the last decade and why so many automakers want to move their brands upscale. And it's yet another reason why brands aimed at the middle class-especially Chevrolet, Ford and Dodge-have been losing market share.
Let's assume this trend continues and we run this scenario out another decade. It's easy to see what will happen. We'll have a greater choice of used luxury cars from which to choose. But there will be proportionately fewer people buying new economical cars-the very kinds of cars the auto industry needs to sell to meet future federal fuel economy regulations.
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Shhh. Don't tell the car companies, but every year a smaller percentage of Americans are buying new cars.No, this has nothing to do with the current slowdown in the economy. It's part of what I see as a disturbing trend. More on that in a moment.
The problem is that annual new car sales have been stuck in the 16 to 17 million range for nearly a decade. I call it a problem because the population of the U.S. continues to climb by about 3 million people every year. In other words, at the same time car sales have been flat for a decade, the population increased by more than 30 million people. So how come if we have so many more Americans, fewer and fewer of them are buying new cars?
John McElroy is host of the TV program "Autoline Detroit". Every week he brings his unique insights as an auto industry insider to Autoblog readers. Follow the jump to finish reading this week's editorial.
In the 1970s, typically 7% of the population marched into a show room and bought a new car every year. In the 1980s and 90s, that fell to about 6%. Last year it dropped to 5.4%. It varies from year to year, but the trend is unmistakable.
Make no mistake, people are buying cars. But they're buying used, not new. In the U.S., the used car market is nearly three times bigger than the new one. Last year used car sales probably hit around 45 million vehicles. That's a massively huge market and so everyone's getting in on the action. New car dealers now sell more used cars than new ones. They sold over 19 million last year. And they make more profit selling used cars than selling new ones.
Even the automakers are cashing in on this trend. Most of them now offer certified used cars, some with amazing success. General Motors, for example, started offering certified used cars in 2000 when it sold about 20,000 vehicles. Last year, GM sold over 500,000 certified used vehicles. In fact, if they broke it out as a separate brand, "Certified Used" would outsell every other GM brand except Chevrolet.
Another key reason why fewer new cars are sold is that people are holding onto their old ones longer. Today, the average age of passenger cars in the United States is over 9 years, the highest it's been in the last half century. The average truck is nearly 7 years old.
The good news, of course, is that people can hold onto them longer because today's vehicles last longer than they used to. When I was growing up, cars rusted out in just a few years-in the Snow Belt, where we throw salt on the roads, you could literally watch them dissolve in front of your eyes! When the odometer rolled over 50,000 miles you knew it was time to get a new one. Today, cars can easily hit 200,000 miles provided you perform proper maintenance.
People also have a lot more choices today as to how to spend their money. Computers, internet access, cable television, cell phones, MP3 downloads and video game consoles are more attractive to a lot of people than taking on the burden of a monthly new car payment.
But I suspect the real reason that fewer Americans are buying new cars is because they can't afford one. The American middle class is getting squeezed by the forces of globalization, and this is going to have a significant impact on the auto industry.
The people who are left in the new car market have higher incomes. They're spending more money on more expensive cars. This is a key reason why the luxury segment has grown so much in the last decade and why so many automakers want to move their brands upscale. And it's yet another reason why brands aimed at the middle class-especially Chevrolet, Ford and Dodge-have been losing market share.
Let's assume this trend continues and we run this scenario out another decade. It's easy to see what will happen. We'll have a greater choice of used luxury cars from which to choose. But there will be proportionately fewer people buying new economical cars-the very kinds of cars the auto industry needs to sell to meet future federal fuel economy regulations.
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Last Week's Show: "Sliding South"
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Click here to subscribe in iTunes
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Reader Comments (Page 1 of 2)
Stéphane Dumas 6:13PM (1/31/2008)
I wondered what could happen if cars like the Renault Logan came to Canada and the US? In France, the Logan hit a chord for people who wants a all-new car but not with all the goodies and also it price brings an alternative to a used car.
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Playdrv4me 6:14PM (1/31/2008)
I've bought 25 cars since 2001, more when you count the cars I've helped others in my family to get.
Of all of those, only one was ever a NEW car and that was a 2003 Volkswagen Passat GLX V6. That was the first and only time I would ever make the mistake of buying new again.
One thing that has also grown disproportianately to the rest of the industry is DEPRECIATION. New cars depreciate MUCH faster today than they did 20 or even 10 years ago, thereby making used cars with even a few thousand miles a no brainer.
In addition to this, used car interest rates and finance terms are now practically at the same level of those for NEW cars, thereby eliminating any (perceived) advantage in financing.
There really is absolutely no logical reason to buy new anymore unless it's a niche-market limited run vehicle in high demand, or possibly for a lease. But even used cars can be leased. This trend is most apparent with cars, but it's also spreading through the electronics industry as well.
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MJL 6:15PM (1/31/2008)
John, Interesting comments. I totally agree about the impact of the used car market. I'm wondering, however, whether your point about Dodge, Ford and Chevrolet – that they are foundering because they are aimed at the middle class – really holds up. How, then, do we explain the success of Japanese brands like Toyota and Honda? Isn't this more just an Americans-making-not-so-great-cars-and-having-marketing-
issues-and-making-dumb-corporate-decisions
problem (a topic we've discussed exhaustively before, to be sure, but one that affects things more than the squeezed middle class?
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Waltzon 6:18PM (1/31/2008)
This is precisely the problem that I have been running into. I am in my late 20's, just finishing grad school and have a wife and two kids-- we need a decent car, but can't afford to pay the $25,000 that is essentially what you have to ante up just to get into the new car market these days. We went last night to look at a new Mazda5 (one of the cheapest options on the market to seat more than 5) and the 2007 model-year that they were "desperate" to get rid of was still $22,000. We're in the used market because we need to be, not because we wouldn't like to buy a new car that we could keep for a while.
It seems like the automakers are all striving to make their vehicles more feature-rich (obviously, that is the best place to pad the profit margin), but is there anyone who is looking to make a vehicle that is engineered and assembled well but doesn't have $8000 (and 800lbs) worth of accessories?
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Playdrv4me 6:18PM (1/31/2008)
Also, even when you put all of the rest aside, it comes down to another simple principle.
What can I get for my dollar?
Why am I going to buy a brand new Camry for 28000.00 when I can have a 2004 Certified BMW 530i for the same or less? I've always speculated that a huge portion of used luxury brand sales are very likely NOT to the target demographics for those cars, but rather to those who refuse to pay the same amount for a bread and butter car.
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Chris Vitale 6:25PM (1/31/2008)
That's what I've always said. When you look at the prices, would you rather have a brand new Cobalt or a 4-5 year old BMW? Personally, I'd take an almost 20 year old Bimmer over a new Cobalt. I had a '91 318i 5 speed that I loved.
Andrew 6:19PM (1/31/2008)
For once, McElroy, I completely agree with you. The luxury market will continue to grow.
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Luis 6:24PM (1/31/2008)
I for one plan on holding on to my car for as long as possible. It makes no sense to buy a new one at this point and time, especially if I don't need to. And luckily the aftermarket portion of the equation is so huge now that you can add and customize to your heart's content. It's true the luxury market is on the rise, but I can put a nice DVD player in my car just like the others. As far as econocars going away, I don't think it's necessarily that, it's that technology is so advanced that you can get a very good car with all the features for a somewhat reasonable price. If you want to pay for luxury, you'll pay for it. If you want something more affordable, you can still get something nice, provided you don't care if it has snakeskin seat covers or not. I don't think practicality is going away any time soon. For me, a car is a utilitarian posession more than a luxury one.
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epilonious 6:32PM (1/31/2008)
"But I suspect the real reason that fewer Americans are buying new cars is because they can't afford one. The American middle class is getting squeezed by the forces of globalization, and this is going to have a significant impact on the auto industry."
I was with you up until this point, hauling out the old "wyaaah, the middle class is dissoooooolviiiiing" (it even RHYMES with "the sky is falling") myth flips the bozo bit almost as fast as any argument for why I should buy cars based on how nice their corporate offices are to gay people.
And no evidence whatsoever... just a random shot in the dark based on some urban legend complete with a random stab at this centuries new malady "globalization". Are you sure Americans aren't buying new cars because their too obese? Perhaps they aren't buying new cars because they aren't coming with smoking kits.
Seriously... I cannot fathom how "globalization" would rip money away from people... when really all it seems to be doing is making cheap things cheaper (wouldn't that mean there is more money for people to spend on things like, oh, I dunno, cars?)
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cowboy bob 6:35PM (1/31/2008)
What tripe. The simple fact is a never-ending decline in "real" middle class income. Thirty years ago middle class people made significantly more money as disposable income than they do today. You could make twenty thousand a year as a factory worker then when a new car cost $4000. Today a typical factory worker makes thirty thousand a year. Factored for inflation, 25% less than THEN!! Now the typical new car is $25000. Do the math, and figgure it out. For those who doubt these numbers, check the publications available from US.gov. Yea, go argue with this, then talk to your Daddy while he tells you about the good old days. Want fries with that? If you don't have a four year college degree, you won't be buying many new cars. Even WITH a degree, it ain't a cake walk.
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cowboy bob 6:37PM (1/31/2008)
Jobs. Good paying manufacturing jobs.
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Timothy Auhll 6:52PM (1/31/2008)
Not to long ago the little woman wanted a new 2008 v6 xle camry,$32,000 to $33,000 dollars ouch. I'm a used car dealer and I said let me look at the auction web site . For $24,000 to 29,000 I could but 2004 Lexus LS430 lease return with all the options.With about 35 to 40,000 miles and still covered under the Lexus warranty.She got made at me.
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caddy dave 7:11PM (1/31/2008)
Truly amazing how some people deny the dissapearance of the middle class. All one has to do is open your eyes and drive around industrial areas and see how many factories including steel mills, garments, toys, shoes, appliances, electronics etc. Industry that used to keep the middle class alive has moved abroad for the cheaper labor leaving the workers either unemployed or taking jobs for half the pay. And to top it off, the good jobs that are left are now being overun by illegals working for half the pay and no benifits except for the benifits we the taxpayers give them. No wonder no one is buying new cars.
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dc11 7:30PM (1/31/2008)
Lets not forget that the increase in population isn't due to births, its due to Mexico. People that come from Mexico aren't from money, are sure won't buy new cars. So the correlation between the increase in population and the percentage of new cars being sold each year is really weak.
But you've hit the nail on the head about cars these days lasting longer than the cars of yesteryear.
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Volk 7:30PM (1/31/2008)
Good article! But just wait, soon used cars from China will be pouring into US market. The wealth, as the energy, does not disappear; it just gets reallocated from a country with rotten economic policies and conditions to more attractive places. Keep buying Chinese garbage at Wal-Mart and sending good jobs overseas, and soon you will be driving used Chinese leftovers after they enjoyed them.
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Will 8:53PM (1/31/2008)
The price of new cars has risen exponentially compared to the pay for the average person.
Also, used cars are in better repair and more reliable than they used to be.
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gsolman6 12:30AM (2/01/2008)
I'm not so sure about the claims of the decreased buying power of American consumers.
http://query.nytimes.com/gst/fullpage.html?res=9F0DE3D61439F931A1575BC0A962958260
Yes it took 17.5 weeks of income in '73 and 25.9 weeks in '93 to buy a new car but the longevity of new cars has gone up proportionately so things could even out.
On another note there will always be a segment of the population that inherently distrust used vehicles and always buy new. I've heard a lot of "but what if it breaks down and my daughter is stuck on the side of the road" remarks.
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WetheSheeple 1:15AM (2/01/2008)
Cowboy Bob
Yes, you are right. The biggest reason the middle class is getting squeezed out is our monetary system and policies. Let me explain a few things to everyone reading this. One of the biggest economic problems we have is the Federal Reserve. This is nothing more than a private banking cartel that has absolutely no oversight by Congress or any branch of the federal government. With their ability to print as much money as it needs to keep the goverment going, it's no wonder the dollar is about ready to collapse.
INFLATION IS NOT FROM PRICES GOING UP, BUT FROM AN INCREASE IN THE MONEY SUPPLY, WHICH IN TURN, MAKES PRICES GO UP! The more money that gets printed and put in circulation, the more the value of the dollar goes down. To give you an idea. How much has the value of the dollar lost since WWII. About 90%. I can't stress enough how the Federal Reserve System, fiat currency, fractional-reserve central banking, and unlimited 'monetization' of governmental debt are extraordinarily bad things-America and the world are about to be given another opportunity to learn what they did not learn in 1932. The FED is unconstitutional and we need to go back to constitutional money. Our Constitution never intended for us to have paper money, period!
Now, with all these trade policies that have been in effect, are pushing us into the one world economy and government, what is referred to as the New World Order. It's no mistake that our 'elected' officials have set the charter for the establishment's goal of pushing through their agenda to make our economy so weak, that we will be looking for someone to bail us out. That's why it's not really an issue to the Disgrace of Columbia with all the illegals in this country nor all of our jobs both blue and white color being offshored in massive amounts. There is a more nefarious shadow government in the name of 'corporatisim' that controls this nation.
I encourage everyone to take an hour and watch this video on Google. It is excellent. It shows you what and how money is created. Please, take an hour out of your lives and watch it. http://video.google.com/videoplay?docid=5232639329002339531
To get back on the subject, yeah it's all about the buying power of Americans. New cars today are built a lot better and last much longer than in the past. Because most cars out there are a liability instead of an asset, the goal is to get from point A to point B for the least amount of liability. And yes, the depreciation is a joke. I have a friend who goes to the GM auction in Flint, and he said that 2006 Cadillac DTS' with 25-30k miles are going through the 'chute' for not more than $20k. Sure beats buying a new one a year newer for $45k. For $1.99, you can go to AutoZone and get a bottle of new car smell!
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tekdemon 6:12AM (2/01/2008)
I'd venture a guess that a lot of the population growth is in large cities with decent public transportation. And even if the growth isn't all there, people from other places tend to move to those cities (NYC for example), and might sell their cars or such.
Anyways, well-run public transportation is a lot more useful than cars in super-packed cities.
An alternate theory would just be that people bought so many huge SUVs they no longer have to own 2 cars. Hahaha.
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Koko 7:49AM (2/01/2008)
Car prices have risen exponentially because we demand more from each car. Just a few years back, buying a car with roll up windows, no a/c and an AM radio was not unheard of. Now we're miffed if we don't have power window's, a/c, 6 disc cd, mp3 ports, a 100k mile warranty, free tires for life. the list goes on. The middle class wants more of what they can't afford. So automakers push these options down into lesser vehicles.
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