By on September 6, 2018

Old Assembly Factory floor

For the past two years, we’ve reported that the post-recession upswing in new car buying in North America seems to have plateaued. Environmental factors have led to Millennials buying fewer cars than their parents’ generation, and wealthy folk have proven unable to pick up the slack — as no amount of money allows you to drive several cars at the same time.

Most major carmakers posted declining U.S. deliveries in July, and August’s data proved a mixed bag. However, America isn’t the only big market that’s taking a beating. The First World seems to have collectively surpassed peak growth and now has to ride out an extended period where volume dwindles until some other nation can afford to import container ships full of sparkly new automobiles.

Bloomberg recently broke down how the world’s largest auto markets are fairing. You’ll be happy, or perhaps terrified, to hear the U.S. isn’t the only region in trouble.

While China remains the world’s biggest auto market, demand has fallen for the last several months. Trade tensions with the United States resulted in some buyers withdrawing from American models while political tensions hurt South Korean brands. The Chinese yuan has declined some since spring, and it’s been a pretty ugly year for the SSE Composite Index.

The Chinese Association Of Automobile Manufacturers posted a 1.5-percent increase in automotive sales in 2017 while predicted higher volumes in 2018, but the first half of the year could have gone better. The growth rate has actually been much slower than anticipated. Last month, LMC Automotive reported that China’s July selling rate of 28.4 million units per year was down 1.5 percent from June and represented the third consecutive month-over-month decline.

“In order to bolster the already slowing economy, the government has announced fiscal stimulus measures and the central bank has shifted to monetary easing, which could possibly help support vehicle sales in the short run,” LMC stated in its report. “The looser policies, however, go against the government’s campaign to rein in excessive borrowing, and thus raise a risk in the long-term economic and vehicle sales outlooks.”

The Passenger Car Association of China plans to release August’s data next week.

Meanwhile, Japan’s auto market has already crested the hill and is now coasting downwards. Passenger-car sales in Asia’s second largest economy fell 3.4 percent during the first eight months of 2018 compared with the same period a year earlier. A major factor is the country’s surplus of old people. Roughly 26 percent of Japan’s population is over 65, substantially higher than than any other country. As well, vehicle ownership is prohibitively expensive in many areas of the country.

Europe is more of a mixed bag. Though volume is up overall, neither Germany, France, Italy, nor the United Kingdom recorded any growth in the first six months of 2018. The reasons are a little more complicated. While the region’s biggest markets are also reaching peak automotive saturation (and suffering from younger generations that can’t afford new vehicles, just like North America and Japan), regulatory issues have made many prospective car buyers cautious.

For example, Europe shifted rapidly from an aggressively pro-diesel continent to one that is aggressively trying to to ban the fuel in an attempt to improve air quality. It’s also pushing for swift EV adoption, with widespread government support. Many consumers simply don’t know what kind of car to buy or what laws will be in place when it comes time to resell their older model.

This could also become an issue in other markets in the coming years, not to mention the likelihood that EV proliferation could create new waste and resource problems. Lithium-ion batteries are toxic, difficult to recycle, and are made of finite resources mined almost exclusively in the world’s poorest countries. What happens if the electric vehicle industry doesn’t turn out to be as green as everyone hoped and the pendulum swings back?

It might not matter. With automakers putting so much energy behind autonomous vehicles, ride-sharing platforms, and data acquisition, whether or not you purchase a car for yourself in 2030 could be irrelevant to their bottom line.

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41 Comments on “North America Isn’t the Only Major Auto Market With Huge Headwinds...”

  • avatar

    Boo hoo. Make a decent car to compete with Tata and sell it in India. No, not an Escalade.

  • avatar

    “Environmental factors have led to Millennials buying fewer cars than their parents’ generation,”

    If by environmental factors you mean too lazy to move out of mom’s basement and get a job, I suppose you’re right.

    • 0 avatar

      The thing is, Bob, it’s not that I’m lazy, it’s that I just don’t care. It’s a problem of motivation, all right? Now if I work my ass off and Initech ships a few extra units, I can still barely afford an apartment and car insurance. So where’s the motivation? And here’s something else, Bob: I have two different houses to play video games in right now.

    • 0 avatar

      You still can drive a car on Xbox in mom’s basement.

    • 0 avatar

      Or our incoming customer’s debt load has ballooned spectacularly. Let’s slap some numbers on it.

      The last statistic I saw for graduating student loan debt for the class of 2017 was an average of ~$39,500. Student loans tend to be financed over 10 years, and the Feds will charge ~7% last I saw. A 10-year, $40k loan for 7% interest is a bit over $450/month.

      That $450/month lines up quite nicely with the magic $500/month max target a lot of car dealerships try to get their customers payment to during the 4-square game…

      Anyways, I don’t know of a new car under $13,000 out the door in the US today. (note ATP is ~$37,000) If you make a $3,000 downpayment, get a 4% loan, and finance for 4 years, you’d be paying ~$225/month for an absolute penalty box.

      A new college grad will average probably $50,000/year, which take-home works out to probably $40,000/year, or ~$3,300/month. That $450/month in student loans is ~14% of income at minimum payment, more if you want to get ahead on it. Adding the $225 on top for a new car would mean a fifth of income on just those two line items. That would sting.

      tl;dr: There’s basically a whole generation whose first new car out of school went to loan payments and universities. They’re not going to buy a new car until those loan payments are substantially reduced.

      • 0 avatar
        Arthur Dailey

        @Anomoly: an excellent summary of the current problem. Add in the fact that the $50k start rate is probably higher than reality and that many of the jobs available to this generation are contract, or temporary. The precarious nature of their employment makes it harder to acquire loans and also precludes much longterm economic planning.

    • 0 avatar

      Agreed that environmental concerns have nothing to do with Millenials’ car-buying habits. If that were true, there’d be a larger market for the hybrids, compacts, and sedans that nobody’s buying. Part of it is student debt, clearly, but I suspect most of it has to do with the country’s urbanization and how expensive it is to live in those urban places. Even if they’re bringing home low-six-figure salaries, they still can’t afford their curated/artisan pancake subscription or whatever, so how can they possibly swing a new car and all of it’s associated costs?

    • 0 avatar

      Laziness has very little to do with it. To echo anomaly149, I graduated with my M.S. in mechanical engineering in 2015. I went to state schools and I have near as makes no difference $100,000 in student loans at an average of 5.4%. With all my experience and my extra degree to put me above the saturated B.S. degree market, my first position out of school earned $65k, cut down to $58k during the oil crash. I’m doing better after jumping but nobody wants to hire people who don’t have at least 10 years of experience for an entry level position.

      Y’all expect us to go out and buy houses after you inflated those prices, buy new cars after making everything a boring blobby imitation SUV or automatic, have kids even though daycare costs 4-figure prices, and get smart with retirement planning after you tanked everyone’s 401(k)s?

      I don’t live frivolously but I’m not starving. On my aggressive plan to pay off my student loans, anything that isn’t a fixed cost from my income goes to the loans and I should have it paid in about 6 years. After that, I’ll have to start looking at a house, and saving up to have a kid. Talk to me in a decade about buying a car, and I’m doing great compared to my peers.

    • 0 avatar

      “If by environmental factors you mean too lazy to move out of mom’s basement and get a job, I suppose you’re right.”

      Try debt load, stagnant wages, and poor job security. You can also add health care costs and housing costs to that as well.

  • avatar

    Part of the problem is a) cars last a long time these days. A well maintained car at 10 years old is barely entering middle age. Why buy new when a used one will do?

    And b) Cash for clunkers destroyed millions of good used cars. And that led to a shortage and spike in price for used cars, which led to people saying what the hell, might as well buy new. But over the past 10 years that shortage has been alleviated and we’re back to people opting for used instead of new.

    • 0 avatar

      Wow the C4C myth persists. There are ~300 million private vehicles in the US. C4C killed about 240K. Not even a tenth of a percent.

      You have hit the nail on the head otherwise. Used cars are more expensive because they are better built. Also, low interest rates enable bigger loan balances which inflate car prices to some extent. I think interest rates are really going to shake up the market in a very bad way.

      • 0 avatar

        It was 690K cars. Take 690K cars out of the supply of cars and it will most certainly affect prices. It’s not 690K out of 300M that matters It’s 690K out of the number of used cars for sale at any given time. A much higher percent than your 0.1%.

        • 0 avatar

          Limiting it to average number of used cars sold annually(~35M) and your C4C number still only represents 2% of the used car pool

          That’s not enough to account for the spike I’ve seen. I bought a 10 year old Accord in 2003 for $2200 and that was a normal price. Today a 10 year old Accord goes for 3-4x that in the private market. We have not had 300-400% inflation over that time

      • 0 avatar

        “C4C killed about 240K. Not even a tenth of a percent.”

        Very true but it did take 240K cars off the playing field and about the same number of potential buyers scrambling for a ride to call their own.

        The Supply part of the equation did get smaller and even if the Demand portion stayed the same, the price of available vehicles left on the playing field had to go UP!

    • 0 avatar
      87 Morgan

      While I do not agree with your C4C assessment, I do agree with your premise that cars last longer. I DD two different cars both are GM, and both are greater than 10 years in-service. I have relatively few issues followed by a serious desire to NOT buy a new car in the next 10 years.

      • 0 avatar
        Arthur Dailey

        Canada did not have a program comparable to the American C4C , yet used car prices are considerably higher here.

        Furthermore, the concept behind C4C was to motivate consumers to buy new or newer vehicles, thus increasing employment/sales in that sector.

        Do agree about cars lasting longer. However, again in northern climates, that is still limited by the tin monster. Not just the body but fasteners/bolts/screws, brake lines, fuel lines, etc are all adversely impacted.

        • 0 avatar

          US dealerships are taking advantage of the low Canadian dollar to purchase used Canadian vehicles, thus exacerbating the shortage of used vehicles in Canada and consequently pushing used cars prices to, in many cases, spitting distance of new car prices.

          • 0 avatar

            Yup there is a local auction house I drive by regularly that specializes in selling Canadian cars to US dealers. There are always a lot of car haulers going in and out of there.

        • 0 avatar

          @Arthur Dailey – engine life is also shorter due to cold weather. I would have kept my old F250 regular cab as a “bush” beater despite the rust if the engine wasn’t close to dead. In warmer climates I could have easily doubled the 248,000km it had.

          • 0 avatar

            I live in the tropical paradise called Cleveland, we have nasty cold winters and I still get killer mileage out of my vehicles. My current DD is a 165K mile Crown Vic ex-cop car that doesn’t use a drop of oil between changes. I doubt that cold has anything to do with shorter engine life.

  • avatar

    “no amount of money allows you to drive several cars at the same time.”

    How much they are ready to pay? I can try. Actually if we were rich my better half would buy a new color matching car for every new designer dress. She cannot wear 50 pairs of shoes all at same time but nevertheless she has all possible styles and colours.

  • avatar

    It would be machiavellian, but… if the new car manufacturers were to buy
    one sub-$1000 clunker off of Craigslist or Facebook Marketplace for each new car that they sell, then it would have the same effect. Fewer used cars means more buyers for new cars. They could also instruct their dealerships to send low worth trade-ins to junkyards instead of the auctions.
    On the other hand, consistently rising sales of new cars isn’t necessarily heaven on Earth. So what if they dip every now and then?

  • avatar
    Tele Vision

    Many manufacturers would be best pleased if all the used cars weren’t usually better cars than the new Inspector Gadget messes they’re peddling. Many of us don’t want all of the driving nannies and the various screens and the warning bongs/bings/chimes/klaxons and the connectivity and the ability to verbally buy something from Amazon or turn on the dishwasher at the cabin whilst driving. Those of us who enjoy driving want to do just that – drive. It’s being taken away from us.

    • 0 avatar

      Great point. That may be why people hold onto cars longer. They want a door key, an ignition key, simple radio controls, actual knobs, slides and buttons for HVAC instead of a touch screen, etc. A lot of that just isn’t available on most new cars anymore.

  • avatar

    Blowback. Consumers are fed up with automakers treating us like we need them more than they need us. We’re just reminding them the tail doesn’t wag the dog.

    Their first clue should be the parts aftermarket is blowing exponentially.

    • 0 avatar

      *blowing up

    • 0 avatar

      A quaint movie trailer opening line, but the reality is this slow down is largely economic. We’re in uncharted territory in terms of sustained economic growth, interest rates are crazy low and manufacturers have been deploying their war chest on incentives. All 3 of these factors are due to change very soon.

      • 0 avatar

        Industry analysts would have to seek other employment with one-word answers, but must tell the industry what they want to hear.

        Automaker’s other problem is there’s never been so many automotive/transportation choices available for consumers with money to throw around, and likely diverting it to the non transportation related. God forbid they open a savings account and aim for debt-free.

  • avatar
    George B

    People buy a car because they either need a car or want a car and can afford a car that they need or want. People buy a new car either because new cars offer something unavailable in the used car market or because high used car prices make new cars more attractive. Maybe demand for new CUVs is high right now because there are customers that perceive a need for a larger vehicle and there are relatively few used CUVs competing with that new car sale. In contrast, there are currently large numbers of good used sedans competing with each sale of a new sedan. In addition, a new mass market car just isn’t going to inspire much envy from the neighbors.

  • avatar
    Jeff S

    @RHD–Actually not a bad idea. Maybe the manufacturers could offer extra bonus cash equal to the trade in value for those who trade an older vehicle that is worth no more than 2k and owned by the owner for at least 1 full year with the agreement that the older trade-in be destroyed. Similar to the cash for clunkers but no Gov. support. I saw many of those cash for clunker cars that were on their last leg so many were ready for the scrap yard any way.

  • avatar
    Big Al from Oz

    I really think there are some countries that are not competitive at certain forms of manufacturing, like Australia and even the US.

    This emotive and nostalgic 1950s view of US industry needs to modernise. If the US frees up its auto market you could probably get your hands on perfectly good driveable “appliances” for well under $10k and even some good midsizers for $12k (USD) and use the money to expand your economy in areas you are competive at. That “saved” money could be used for healthcare, infrastructure, etc.

    I don’t understand why many Americanss want to compete with developing nations. Or is this a Trump/Luddite thing, it makes you fell feel tough, ie, hey “don’t mess with us” attitude?

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