By on June 26, 2012

Consulting firm Alix Partners predicts a slowdown of U.S. auto sales. The study, reported at Reuters, cites the usual suspects, such as lingering high unemployment, increased costs and more people driving less. It then touches on something that is very basic, but often overlooked: Sales are driven by the number of potential buyers.  If there are fewer buyers, there will be fewer buys. New cars are bought in certain age groups, usually somewhere at around 35 and up. As the boomers are going out to pasture, there simply will be fewer potential buyers.

The peak of car demand in the early 2000s coincided with a population peak in the new car buying age. Likewise, a long valley in the new car buying age will pull down sales for decades until a peaklet of today 20 year olds starts buying new cars.

In the U.S., the effects of these population peaks and valleys are expected to be not as harsh as in Europe and Japan, where births dropped drastically beginning in 1970. This valley is now 40 years old, and it will impact car sales for a long time.

 

 

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28 Comments on “Boomers Boom Followed By Car Bust...”


  • avatar
    Halftruth

    This was bound to happen, bad economy or not. Couple that with the improvement in technology and overall reliability/durability with cars nowadays and it’s easy to see this happening. Bailout part deux?

    • 0 avatar
      star_gazer

      The loyality for domestic brands wanes as our population ages, which is another hurdle for Detroit. In my age group (mid-fifties), workers at my plant talk about their last new car purchase, usually a domestic. The younger workers have no problem with driving a vehicle assembled down south. The world has changed…

      • 0 avatar
        morbo

        It’s ‘worse’ (or better, depending on your persepctive) on the East Coast. I’m a mid-thrities white collar professional in DC. My college friends are the same here and in NYC. We buy new cars. In recent order for the past 5 years they’ve been they have been

        Chrysler 300C (mine)
        Honda CR-V
        Mercedes GL
        Honda Crosstour
        Lexus RX350
        Honda Pilot
        Honda Accord
        Acura TL
        Chevrolet Trailblazer

        My group’s honda love notwithstanding, the scary thing for Detroit is that we’re the high margin purchasers here. I’m an oddball with my love of American road beasts and the Chevy buyer was the son of a rahway S-10 factory worker. otherwise he’d have been driving a Japanese box too.

      • 0 avatar
        C P

        You have a plant? I’ve been wanting to get a fern.

      • 0 avatar
        28-cars-later

        Wow Morbo that’s a pretty sad list of rolling refrigerators and fancy station wagons, the 300C is the only one which really stands out. Your friends with money should probably just give it to me for a Lotus or MG and all buy bland Camrys.

      • 0 avatar
        star_gazer

        @ CP:

        *That’s* my concern…we’re buying cars from too many fern-ers.

        (Elvis Voiceover: “Thank you, Thank you very much”.)

      • 0 avatar
        Slab

        I’m in my mid-50s and I’m looking at buying my first new domestic car ever. It took a long time to convince me that buying domestic wasn’t just begging for reliability issues.

  • avatar
    stuntmonkey

    If anything, this is a call to put your money in shuttle services, something smaller than a bus, but on a free route like a taxi. Once they leave their cars, seniors and retirees depend on these services, especially now that families live to far apart.

  • avatar
    Philosophil

    I realize the ‘boomers’ represent an upward peak in reproductive rates (at least in Europe and North America), but the world’s population has been rising continuously overall, so can we assume that this is a somewhat local effect rather than a global one? After all, ‘boomers’ are largely the result of the end of the Second World War and seems to be limited largely to Europe and North America (or am I wrong in this?). Did China and India have a ‘boomer’ generation?

    This is why I find all of this ‘generation’ talk so strange (gen Why? being the most recent), for it takes what seem to be local phenomena and tries to universalize them as happening to all people everywhere, treating all people and places as if they were a homogeneous whole. I don’t doubt the importance of the ‘boomer’ effect as a local phenomena, but it’s been long recognized as a potential problem here in North America (which is why Canada has long tried to compensate for this effect through things like immigration).

    • 0 avatar
      Zackman

      I think it boils down to income. The WWll and Boomer generations were the richest – the vets after the war into the 1970′s, and the Boomers (I am one, 61 years old), from the mid-late 1970′s – ’til now.

      Boomers being the largest age group in this country – other countries – it didn’t matter at the time, for most every other country was stricken by the war, hence famine, destroyed/damaged infrastructure, or just depleted resources. Only the U.S came out on top, or so it seemed.

      Incomes for all age groups are going down, hence fewer new vehicles overall. I think you have to follow the money – or lack of it.

      • 0 avatar
        mikey

        @Zackman….Exactly! I know many “boomers” from all socio economic backgrouds. It all boils down to, are you willing to pay the money, and eat the depreciation,just to drive new? One needs to think long, and hard, before taking on the financial obligation of new wheels.

        No one wants to take on debt.Some folks have the cash,but a new car can put a pretty good dent in your cookie jar.

        Don’t get me wrong,I love new cars,and have bought lots of them in my life. These days, there is a lot of other things I would rather do with the cash.

        Besides….the Impala will run forever.

    • 0 avatar
      Signal11

      It’s not local and it eventually happens almost everywhere.

      The bulge in the population pyramid happened later, but much more quickly and suddenly in East and Southeast Asia than did in North America and in Europe. China also has had it’s peak period of reproduction with current groups from 30-40 and 10-20. China is actually below replacement level fertility now. This means that those two groups are the equivalent of American baby boomers or les trente glorieuses in Europe.

      India has not, but is showing signs of slowing down and even including BRIC, the world is expected to reach replacement level fertility in the next few years. The global total population will continue to grow for a period of time because everyone is living longer, but eventually, the world’s population will eventually reach equilibrium and may indeed shrink.

      The core of almost every nation’s economic story is the same. Read the population pyramid and you are also reading the story of that country’s periods of economic growth and slowdown almost directly correlated with the peaks and valleys of it’s pyramids.

      Everything else are but minor details.

      There’s a lesson there about immigration policy but that’s a big can worms.

  • avatar
    C P

    Looking @ that chart, I don’t see the big valley you’re talking about. 0-40 drops off, but not a lot.

    • 0 avatar
      Slab

      Yeah. There’s a slight dip at 35, but it looks like there are as many 20 year olds as 50 year olds.

      • 0 avatar
        Type57SC

        They talked about people driving less as the age, so boomer pulling down the average as they move up that chart, and they talked about less young people having licenses, so losing potential car buyers on that end too. more than just the population curve.

  • avatar
    roadrabbit

    The boomers still have a little car-buying life left in them. The age with the highest propensity to purchase a new car is in the upper 60s. It rises from the 30s (under 30 year olds don’t buy new cars in significant numbers), peaks in the upper 60s and falls off pretty sharply after the early 70s. By the time most of the boomers pass that mark and start to, uh, pass in bigger numbers, Gen Y will be firmly in car buying years. While volume may be less impacted than the story implies, the mix of cars will likely be very different.

    • 0 avatar
      Patrickj

      I’m in my early 50s, and bought two new cars before turning 30. Have only bought one since.

      • 0 avatar
        Type57SC

        i think what he’s looking at is JDPIN or Polk data, which is badly skewed old by the parent buying cars for their kids or at least helping out by using their credit to strawman finance the car or just do IOU’s-to-dad – both of which make the parent look like the buyer.

  • avatar
    highdesertcat

    Population pyramids are great for …. well…, population density studies by age groups. What makes people in any age group buy or not buy anything is how well off they are.

    If they are well off or guaranteed to be employed for a contractual period, they tend to buy more of everything. If they have to worry about being unemployed, have low income or are otherwise financially insecure in their future outlook, they tend to stay away from long term obligations and debt like new car or home financing.

    For instance, there is a lob-sided correlation (not shown here) about young people in government service, like the military, who tend to buy more new cars, or whatever, than young people in the same age groups not employed by the government. But what if all those young people could actually find jobs and a steady income?

    My interpretation is that if all these currently-unemployed people find jobs and remain gainfully employed during their entire lifetime, it will blow this car-bust forecast all to shreds.

    • 0 avatar
      Type57SC

      I agree with that logic, but it’s been 4 years since the Lehman shock and we’ve still got boatloads of under/unemployed, epecially in the young. Why do you think it will snap back a secure employment picture for young people soon?

      • 0 avatar
        highdesertcat

        “Why do you think it will snap back a secure employment picture for young people soon?”

        Actually, I don’t. The operative word I used was “if”, as in IF all these currently-unemployed people find jobs and remain gainfully employed during their entire lifetime, it will blow this car-bust forecast all to shreds.

        And without being political, I don’t believe that the national policies of the current administration are working to get us headed toward the goal of greater employment and business expansion.

        I could cite numerous examples, but will limit myself to the new-car dealerships once owned by my brothers. It was to their advantage to sell to a nationwide retailer, take the money and run.

        The downside was that the new owners laid off a sizable number of long-time employees and brought in their own at lower wages with far fewer benefits.

        So unless and until our national economic policy changes, I fully expect that job creation will remain anemic.

        Even my Democrat business-owning friends believe that and limit their employees to the bare minimum, foregoing growth to escape the profit-eating punishment of Obamacare and higher taxes.

        Even if the mandate of Obamacare is repealed, Obama and his economic policies will be with us for four more years because he has his re-election sewed up.

        If Romney gets the nomination, there won’t be enough people voting for him to get a majority and oust Obama. There will be a lot of people staying home in November.

  • avatar
    don1967

    The Boomer effect on car sales will be severe, and not just because their peak income years are over. It will be severe because Boomers have effectively spent the wealth of 3 generations, and that sort of thing creates a huge financial hangover.

    1. Boomers spent the inheritance passed on by their frugal Depression-era parents
    2. Boomers are spending every dime of their own lifetime earnings
    3. Boomers mortgaged their children’s future with 30 years of unaffordable social programs and other “love generation” pipe dreams.

  • avatar
    chicagoland

    Can’t afford new car, can’t qualify for the loans, and have heard ‘never buy new’ for years, so what to expect?

    And, “30 years of social..”? Asif it started in 1982, when Reagan was in office?

    How about that Vietnam War, Gulf War, and Iraqi Freedom? They were not cheap.

    BTW: Boomers had to pay for Depression era, Korean War, and WWII debts, so don’t get all cocky. Previous generations paid for Civil War, new states, colonization, etc, so get over it.

    • 0 avatar
      don1967

      Financing wars is not new. It has been going on for 4000 years, so you can’t cite the most recent examples as proof of your world view.

      Social spending, labour laws, etc. are, however, a relatively new phenomenon. They started around the turn of the previous century, and accelerated more during the boomers’ lifespan than at any time in modern history. As a result, millions of people living in developed nations now expect an inflated standard of living that is paid for with borrowed money. Anyone whose head is not firmly buried in the sand understands this.

  • avatar
    Joss

    Back in the 50′s Detroit was happy to palm a wage & turn a profit. Today its done no-wage-robots and all about getting the shareholders a 10% yield.

  • avatar
    Felix Hoenikker

    This pyramid conflicts with the meme that the baby boomers are such a large part of the population. Using the popular definition of a boomer as some born between 1946 and 1961, the average age of said boomer would be 59. However, the populations of the 55 and 60 and year olds according to this chart are smaller than younger bands below them. This would tell me that there is no population “cliff” and that demographics are not the reason to expect lower auto sales in the coming years. Has more recent immigration to the US masked this by adding to the younger population bands?
    Am I missing something here?

    • 0 avatar
      Roland

      A fair percentage of a birth cohort never make it to old age, even in the developed countries. When you consider the amount of mortality that already must have occurred among the cohorts that are now represented by the 50-70 bands of that chart, you’ll realize that they were indeed a big group of people when they were being born. At any rate, it’s unusual to see the ratio of 60 year olds to 20 year olds being virtually 1 : 1, as is now the case almost throughout the developed world. In Japan and some parts of Europe it’s more pronounced.

      Immigration does play a part. Most new immigrants are in their 20′s or 30′s, and for a time they offset the aging effect. However, that’s temporary, since the immigrants themselves grow old, too. Unless the migrants sustain a substantially higher fertility rate than the host population, the overall average age of the population continues to get older–but with a larger aggregate population.

      I don’t know about the USA, but in Canada we find that immigrants’ fertility rates quickly converge with that of the native-born population. This is not surprising. There is a high cost of having children in developed countries, both in terms of direct expenses, and in terms of opportunity cost. One of the biggest reasons most developed countries import a lot of people in the first place is that human beings are relatively cheaper to make elsewhere.

      There’s little wrong in itself with a columnar population age profile. It had to happen eventually, unless the population is to keep expanding without limit. It’s only the period of transition to a more steady-state population that is difficult. Too many institutions (such as most pension plans) are based on an assumption that later generations must be more numerous than their forebears. Also, population growth is the “easy way” to expand the economy, so political and business leaders have a natural bias in that direction.

      If aging developed countries didn’t bring in a lot of immigrants, the economic pain of the Boomers’ aging would be sharper. However, the hardest part of the adjustment would be over in less than 20 years. By using high immigration rates to relieve the short-term effects of Boomer aging, the problem becomes milder, but more persistent–probably looking at 30-50 years of fiscal strain. There’s no objectively correct answer, only political choices. The option of a “hard adjustment” or “bite-the-bullet” scenario has never really been presented to the public in any of the Western countries. Instead we’ve proceeded by default into the “prolonged adjustment” scenario.

      Probably the strangest thing happening right now in world demographics is that so many of the relatively poor countries that are seeing sharp, sustained, drops in fertility levels. Egypt’s fertility rate has fallen by more than half in just 20 years. China is now sub-replacement. Iran and Mexico will also go grey within the next 25 years.

      In the 1980′s, the consensus among demographers was that world population would crest at 14 billion by 2050. But now it looks like we’re going to crest at about 9.5 billion by 2035. Doomsters should take heart.

      Sorry to go on for so long about all this. I find demographics interesting.

      • 0 avatar
        Felix Hoenikker

        Roland,

        Thanks for the info. I find demographics interesting too, and am a fan of the demographic economist H S Dent.
        I would like to add one observation about the effect of mortality on my cohort. I recently attended a 40th high school reunion. As part of the ceremony, one class member read off the names of the deceased classmates. Being a little OCD with numbers, I counted the total and divided by the size of the graduating class to come up with a cumulative mortality of 8%. I didn’t think this was too bad for a group of people that survived boh the last half of Vietnam and the much worse disco period that followed.
        Somewhere I got the mental picture that the boomer population would look like a pig passing through a python over time. This pyramid shows otherwise.


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