The New York Times recently had an article that asked one of the key questions regarding the future of the US and global motor vehicle industries: how many new cars does the United States really need?
Automakers, along with the thousands of companies that supply them with parts and components, have become accustomed to a US market that supports light vehicle sales in the range of 17 million vehicles per year. But many of those purchases were based on home equity loans, easy credit, and lease agreements that put drivers into new cars every few years. The current economic downturn has pushed that number to below 10 million vehicles per year (9.3 million on an annualized basis as of April 2009, according to Autodata Incorporated).
The question, then, is what will the US auto market look like once the recession ends? Following the housing collapse, the credit crunch, and the oil shock of 2008, has there been a fundamental shift in vehicle ownership levels in the United States?
According to the New York Times,
The Treasury Department’s advisers, who initially expected auto sales to pick up late next year, now foresee no jump in demand this year or in 2010. And even five years out, they expect annual sales to be about 15 million, still well below the peaks of this decade.
The United States already has by far the highest per capita vehicle utilization rates in the world, an average of 2.28 vehicles per household.
Over at Reuters, Felix Salmon has grappled with these same issues (here and here) and has linked to several charts showing new car sales per capita. Here is a chart logging annualized vehicle sales in the United States from January 1994 through January 2008. Based on Bureau of Transportation Statistics data, it shows annualized vehicle sales, sales per 1,000 population, and registered vehicles per 100 population. Here is the same chart covering the period from January 1976 through January 2008.
As the charts demonstrate, there has been steady growth in the number of registered vehicles per 1,000 population over the last several decades. At the same time, the US auto market has dropped from selling about 60 cars per 1,000 population during peak years down to about 35 in recent months.
Felix Salmon concludes from this data:
If we’ve learned anything over the past decade, it’s that things can stay at unsustainable levels for much longer than anybody might imagine. And over the medium term, it’s far from obvious that auto sales in the 9-10 million range are really as unsustainable as all that. Not only don’t we need to get back to “a typical replacement rate”; it’s actually very unlikely we will ever again see the rates of car ownership that prevailed before the crash. That was a world of 3-car garages in exurban McMansions; we’re moving into a more sustainable way of living, which involves fewer cars and higher urban density. Those black squares in the graph above are going to start marching downwards for many years to come. Which means that the wiggly lines aren’t ever going to regain their prior peaks.
A few comments of my own. First, I’m dubious that Americans have moved en masse toward a more ‘sustainable way of living,’ but I do think that Americans will buy fewer new cars and own them longer. A big part of this shift is related to the quality push among automakers over the last 25 years: there’s absolutely no reason consumers shouldn’t be able to hold onto their vehicles for 10 years or longer if they wish. Also, the shift in the US vehicle product mix toward smaller, more fuel-efficient vehicles, which was given a hard push by last year’s record-high gas prices, seems likely to continue given the Obama Administration’s proposals for tighter CAFE standards. That is not to say that I foresee SUVs disappearing any time soon, just that the trend toward ever larger vehicles (and the accompanying trend toward larger tires) seems to have peaked.
My second observation is that the new data provide confirmation, if any were needed, that the growth over the next few decades will come in developing countries. While on a tour in southern China last year, I drove for miles and miles on a new eight-lane highway that was eerily devoid of traffic (it was just completing construction). I suspect it will not be free of traffic for long. For emerging countries such as China and India to approach vehicle utilization rates that are even a quarter of those in most developed economies will require millions of new vehicles.