Is December the New Normal for U.S. Car Sales?

by John Horner

Published: January 8th, 2009

is december the new normal for u s car sales

The New York Times has put out a story saying what’s already on many industry observers’ minds: “The historic collapse of the new-car market dragged on in December, raising questions of whether the auto industry will ever again have sales levels that it took for granted just a few years ago.” The easy credit, hyper-consumerism era had established new car sales in the 16 million per year range. But then along came 2008’s dismal 13.2 million units… and the last half of the year was much worse than the first. Even the former “don’t worry, be happy, better days are just around the bend” cheerleaders have given up. “GM’s chief market analyst, Michael C. DiGiovanni, said the automaker was predicting industry sales of 10.5 million to 12 million vehicles for the year.” Long time industry pundit John Casesa says: “After an era of excess indulgence, we’re now entering a prolonged period of conservation. Trading in a car every three years is a luxury that the average American can no longer afford.” Against that background, one can only wonder what fantasies will be embedded in the new, new, newest turnaround plans GM and Chrysler will hand in to the U.S. Treasury Department a few short weeks from now. No matter what their term papers say, Casesa pegs it: “The internal problems of the Big Three are so great, there is no way they can survive without government help for several years.”

Much of the new car and truck market has been made up of people who wanted new wheels, who “deserved” new wheels and not those who really needed them. Meanwhile, the average age of the fleet on our roads has risen from about six years in the 80s to around nine years now. That 50 percent increase in automotive longevity is both a great technical accomplishment for the industry and a big sales problem.

The old regimen of planned obsolesce driving demand for new cars ran smack dab into import competitors who played by different rules and forced the game to change. For a time, the easy money era masked this dwindling underlying demand brought on by longer lasting vehicles.

In fact, the U.S. now has more registered vehicles than it does licensed drivers (guilt as charged in our home!). The shift from one income to two income households over the past few decades probably has much to do with that as well. But, the demand pumping game has come to a sudden screeching halt and many formerly two income households have been brutally pushed back to one or zero incomes.

Bush 41’s favorite word “prudence” is suddenly back in style. Those consumers who still have jobs are watching their budgets just like grandpa used to.

So where does that leave the underlying demand picture? My guess: around 10-11 million per year for quite a few years to come. If so, almost everyone is in big, big trouble. Marginal players like Chrysler, Mitsubishi, Suzuki, Kia, Jaguar, Land Rover and most of GM’s brands will have no choice but to close up shop in the U.S. Things look bleak for VW/Porsche/Audi as well. VW/Audi hasn’t made a profit in the U.S. in ages, and that was when times were pretty good.

A period of great extinction is once again upon the industry.

John Horner

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Ronin on Jan 09, 2009
Is December the New Normal for U.S. Car Sales? No, December is the good old days. We are looking at a trend that will last at least several years. There is nothing on the short term horizon that looks to change this; on the contrary. No effective inflation-adjusted wage increases in three decades, no one able or willing to get credit for a too-expensive item, job losses everywhere you look, wage and benefit cuts everywhere, house equity loans kaput, a huge glut of latish model used cars, government and Fed in full panic mode, generating money and throwing it everywhere as fast as they can. OK, not everywhere; in fact, at only a very few select targets who also happen to be buds. Raw material costs are falling. The dollar is rising. There is no justification for the prices of cars staying the same in an overall price deflation while inventory stacks up. The longer manufacturers insist on wishing prices, and the longer that governments subsidize these prices, the longer until sales start to move again. This will take years. One year ago, who predicted what we are seeing today? No one quoted by the press, no one. Their creds are shot, they were way wrong. And a year from now will sales under 8 million they will be claiming the same crap: nobody could have seen this coming. When they, too, earn their livings from the auto industry: bought and paid for (or not), Jack.

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Geeber on Jan 09, 2009
Engineer: No, Ronnie, as this table shows, both the Midwest and the South are net receivers of federal taxes (the South does receive more), paid for mostly by those elitist liberals on both coasts. Remember to add-in those generous Ag subsidies… The Northeast and California have supported higher taxes, which are assessed most heavily against the top earners, and most high earners live in those areas. One would therefore expect that residents of those states would pay more taxes under those policies. They are only getting what they want...

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