Boomers Boom Followed By Car Bust

by Bertel Schmitt

June 26th, 2012 9:19 AM

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.

#BertelSchmitt #Marketing #Sales

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Don1967 on Jun 26, 2012

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.

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Chicagoland on Jun 26, 2012

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.

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- Don1967 on Jun 27, 2012
  
  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.
  
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Sector 5 on Jun 26, 2012

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.

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Felix Hoenikker on Jun 27, 2012

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?

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- Roland on Jun 29, 2012
  
  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.
  
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- Felix Hoenikker on Jun 29, 2012
  
  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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