By on May 20, 2008

train-wreck.jpgThe harsh realities of a mature US automotive market are wrecking havoc on the plans and finances of all the players. The Wall Street Journal reports that 15 million units is about the best the industry can hope for in '08. That's back to the future, 1990s style. Even market share-gobbling Toyota senior executives admitted they have "about a full plant's worth of excess capacity in North America– not including the Tupelo plant due to open in 2010." Holy excess capital expenditures Batman! The master of production planning has hit the wall. Bottom line: the US is a stagnant, mature market where new cars are competing for replacement business, not growth. Meanwhile, more manufacturers are threatening to enter the US market. The Chinese and Indians (Tata) are chomping at the bit, and Alfa-Romeo has announced plans to return… soon. Analysts forecast a return to growth in the decade ahead. Still, clearly, not everyone's going to make it.

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17 Comments on “U.S. New Car Market Hits the Buffers, Big Style...”


  • avatar
    seoultrain

    wrecking havoc –> wreaking havoc, no?

    Though it is definitely true that the American auto industry is in a replacement phase, it’s been that way for a very long time. Recent widespread money problems are the cause for people holding onto their cars for more than the customary 4 years. When (if?) the economy is well again, all that pent up car-buying angst will drive up sales again. Too bad some of the Big 3 may not make it that far.

  • avatar
    jthorner

    “all that pent up car-buying angst”

    Personally I don’t see a lot of pent up new car buying angst, I see that people are keeping their vehicles longer and longer and that only fashion crazes and/or easy money have driven demand spikes.

    One would think that rising fuel costs might drive a replacement cycle into vehicles with better economy, but so far we aren’t seeing it.

  • avatar
    seoultrain

    jthorner, almost every single small car on the market has been seeing sales increases. Even the Big 3’s small cars like the Focus, and Cobalt have been selling well. This is happening in a market where sales as a whole are way down. If that isn’t a sign of (largely clueless) people being driven to smaller cars by high gas prices, I don’t know what is.

    If gas prices increase and the economy improves, I’d expect to see a huge exodus to the compact car market. That’s where the herd is going, and the rest will join them when they obtain the means.

  • avatar
    Dynamic88

    … and Alfa-Romeo has announced plans to return… soon

    Wow! Talk about competition.

  • avatar
    ash78

    I think that most consumers are expected to act in rational self-interest in car buying, but I question the rational portion of that.

    People are shocked by high gas prices. Easy enough. But how many people driving SUVs really take the time to sit down and calculate how much money they’re going to be losing (not to mention, space/utility/flexibility) by trading in their SUV or truck for a small car? Especially now with truck prices depressed? Talk about “catching a falling knife”…

    Unless you’re driving 25k+ per year, the economics are generally stiffly in favor of keeping your current vehicle.

  • avatar
    Matthew Danda

    How can the economy recover when high paying jobs are disappearring left and right? There are fewer and fewer customers for the large-ticket items. Car manufacturers will have to wait until the “next big thing” to revitilize the economy. Unfortunately, no one knows when or what that will be.

  • avatar
    Skooter

    Alfa Romeo! I’m sure no current manufacturer is quaking in their boots over that!

  • avatar
    Gottleib

    If we open the borders then we will increase the number of people that need to buy a car. Think about it that’s what happened at the beginning of the last century.

  • avatar
    jthorner

    “jthorner, almost every single small car on the market has been seeing sales increases. Even the Big 3’s small cars like the Focus, and Cobalt have been selling well.”

    True, but total unit volumes are still down. A larger fraction of the new car pie is smaller vehicles, but the pie continues to shrink.

  • avatar
    menno

    In related news, a barrel of crude oil went up to $132 from $129 just this morning.

    That’s a dollar per hour or so.

  • avatar
    ScottGSO

    Eh, you think we have a bad car market just look at Europe and Japan. They have actually declining populations in addition to the general economic woes everyone is experiencing. Give it 5-10 years we’ll be fine; Europe and Japan, their markets will be rapidly shrinking.

  • avatar
    Busbodger

    ScottGSO: Give it 5-10 years we’ll be fine; Europe and Japan, their markets will be rapidly shrinking.

    And how fast are China, India and other 3rd world countries growing?

    Their goal is the same as our goals: family, home and a car or two in the driveway. Then comes going out to buy stuff like food and stuff for the house.

    How many cars sold in China last year? They are now the second largest car market. 5.9 million cars. Japan is/was the third largest market. There is alot of potential growth in China. Same in India. Next comes Vietnam, Philippines, and how many other countries anxious to live like Americans and Europeans.

    I think gasoline/oil derivatives will continue to rise. In fact expect it and if I’m wrong you’ll be money ahead.

  • avatar
    windswords

    Matthew, I understand your angst about jobs being lost but in general (so far) our unemployement rate is pretty good. We can debate whether it will remain that way but all the doom and gloom on the news has distorted the reality – just in time for election season!

    You have heard, no doubt, that in America the rich get richer and the poor get poorer. Interestingly enough, our government’s own numbers show that many of the poor actually get richer, and that quite a few of the rich actually get poorer. But for the rich who do actually get richer, and the poor who remain poor … there’s an explanation — a reason. The rich, you see, keep doing the things that make them rich; while the poor keep doing the things that make them poor.

    Speaking of the poor, during your adult life you are going to hear an endless string of politicians bemoaning the plight of the poor in America. So, you need to know that under our government’s definition of “poor” you can have a $5 million net worth, a $300,000 home and a new $90,000 Mercedes, all completely paid for. You can also have a maid, cook, and valet, and $1 million in your checking account, and you can still be officially defined by our government as “living in poverty.” Now there’s something you haven’t seen on the evening news.

    How does the government pull this one off? Very simple, really. To determine whether or not some poor soul is “living in poverty,” the government measures one thing — just one thing. Income. It doesn’t matter one bit how much you have, how much you own, how many cars you drive or how big they are, whether or not your pool is heated, whether you winter in Aspen and spend the summers in the Bahamas, or how much is in your savings account. It only matters how much income you claim in that particular year. This means that if you take a one-year leave of absence from your high-paying job and decide to live off the money in your savings and checking accounts while you write the next great American novel, the government says you are ‘living in poverty.”

    This isn’t exactly what you had in mind when you heard these gloomy statistics, is it?

    Do you need more convincing? Try this. The government’s own statistics show that people who are said to be “living in poverty” spend more than $1.50 for each dollar of income they claim. Something is a bit fishy here. Just remember all this the next time Keith Oberman puffs up and tells you about some hideous new poverty statistics.

    And please remember this: The average person in this country described as “poor” has a higher standard of living than the average European. Not the average “poor” European, the AVERAGE European.

    Now what KIND of jobs will we have in the future is a whole different ball of wax. I’m an economic nationalist and I believe that it is necessary to have blue collar as well as white collar jobs, hi-tech as well as low-tech. Not everyone is meant to be a computer analyst or a financial advisor. I have great respect for people who work with their hands and who make things. But we could do with less lawyers!

  • avatar

    # Gottleib :
    If we open the borders then we will increase the number of people that need to buy a car. Think about it that’s what happened at the beginning of the last century.

    Our borders are open for all practical purposes, and have been for the last 40 years. In 1990, the population increased by the equivalent of four New Jerseys, three of them do to mass immigration. All this cheap third world labor is keeping US workers down. The US National Academy of Sciences found in 1997 that from 1979-1995, the wages of US high school dropouts plummeted nearly 30%, more than half of which was due to competition from immigrants.

    According to the Pew Research Center, the US population will explode from the current 303 million to 438 million by 2050, and more than four fifths of that growth (82% to be exact) will be due to mass immigration. With that kind of growth, the traffic is going to become like in Japan in a lot of the US.

  • avatar

    David Holzman: thank you for beating me to saying it. Also, how many new cars can cheap Third World labor buy anyway?

    John

  • avatar
    Matthew Danda

    windswords:

    Sorry to tempt you with such a hot topic. Let’s limit this to the car business–my point is that less people will be able to afford the more expensive cars because the job environment is changing. Yes, people are still employed, and yes they are healthy and affluent. But the fact of the matter is is that less people will be affluent enough to drop $40k every 4 years on a vehicle, due to changes in the structure of the job market.

  • avatar
    limmin

    So what's the big deal? Should people buy new cars every 3 years? Is that responsible? People are hanging on to their cars and saving their money. That's a good thing. Rampant consumerism is a bad thing.

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