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Posted by Bruce Hall on Tue, Oct 6, 2009 at 5:58 PMThe aging automobile population
There is what appears to be a relatively new dynamic affecting the automotive industry - a quickly aging vehicle fleet. This may only be temporary, but there are several factors pushing toward this.
First, and most obvious, the economic slowdown has dramatically curtailed new vehicle purchases. We should see a gradual reversal of that, but as the "Cash for clunkers" program showed, the real demand is still not there.
Second, a less obvious, leasing has been made less beneficial to the consumer as lease durations have increased as well as monthly rates. This has pushed consumers toward purchasing and holding on to vehicles for a longer period to offset the rapid depreciation in the first few years.
Third, blue collar and middle class jobs have disappeared at an alarming rate and could well take a decade or more to get back to pre-recession levels. Furthermore, the jobs that are being secured are often less financially rewarding and result in less discretionary funds available for the purchase of a new second (or third) vehicle.
What this may mean are two things:
1. The new vehicle market may remain much less than the 15 million to 16 million per year pre-recession levels.
2. Servicing facilities, especially the dealerships that have not been forced out of business, may find more of their profits coming from their service, body, and parts departments.
Smart dealerships will go out of their way to establish good maintenance and repair relationships. Smart manufacturers will go out of their way to make the most affordable vehicles that still meet government mileage, emissions, and safety mandates. These may be something other than hybrids or plug-ins - at least for several years.
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new car sales
"Third, blue collar and middle class jobs have disappeared at an alarming rate and could well take a decade or more to get back to pre-recession levels. Furthermore, the jobs that are being secured are often less financially rewarding and result in less discretionary funds available for the purchase of a new second (or third) vehicle."
This is the absolute core of our problem! Why do the "smart people" not see this? If you don't have enough people making a decent wage, you cannot have a thriving economy! It's not complicated, doesn't require postdoctoral education or a Nobel prize to understand.
Even those of us who still have decent middle class jobs (knock on wood) are largely in debt and/or underwater on our houses--even modest houses financed conventionally. New cars move increasingly upmarket and less affordable to more people as median wages stagnate or fall. I mean, really--DUH.
And frankly, I'm not confident that we will see middle class jobs rise to a pre-recession level. As we become more "productive", fewer people are needed for most jobs. Even cashiers lose out to self-check. Unless there are new jobs from sectors unseen, we will still have high unemployment, hence lower consumer spending on all goods.
aging autos
You hit the nail right on the head! You can thank the banks also for trashing everyone in the United States credit ratings also. Therefore no autos can be bought, or will be sold as before.
aging autos
And that is how it is. And how it will pretty much remain as so many manufacturing jobs have moved out of country. It will affect purchases of many things besides autos.
Thank your government/politicians for this.
Good column Sir.
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