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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