The New York Times discusses whether Americans will return to buying cars at the pre-bust level when conditions return to some level of normalcy. Of course, the subtext is that the US economy will get back on track later this year, when many those who anticipate growth starting 3Q/4Q, when pressed, say the recovery will be so lackluster as to be a borderline recession.
The article does point to demographics, that the baby boomers are moving into retirement, and retirees are not big on buying cars. But it still misses or glosses over a couple of key points.
One is that every country experiencing a major financial crisis suffered a permanent decline in its standard of living. It isn’t unreasonable to think that car purchases will take dent longer term. In fact, a very good slide show by David Rosenberg, until recently, chief economist for North America for Merrill Lynch, had a chart that showed the ratio of adults to cars over a long period of time (sadly, I cannot locate said chart, but I would presume it excluded the prison population). It showed a near continuous decline to its recent level of 1.2 adults for every car.
The implication is that not even that long ago, Americans lived with fewer cars, and conceivably could again. I have also been told, but do not have any stats to prove it, that car ownership has fallen sharply among the young in Japan, in part because many are “freeters” with little job security.
The flip side is that if these conservative forecasts do not come to pass, the industry would have gotten so lean that it would be coining money if Americans start buying cars in force again.
From the New York Times:
Can American drivers live without that new-car smell?
In recent years Americans appeared to be hooked on it…Now the market has collapsed by 46 percent to below 10 million, as people are making do with the cars they have, leaving the industry to debate — and worry — about what the new normal will be once the recession ends.
Some say the downturn is temporary and that sales will spring back in a few years. Others believe Americans will rethink whether they need so many cars, particularly new ones…
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…
If sales do not recover, the Treasury will have to provide more financial support for G.M. and for Chrysler, which has received about $10 billion in federal aid, before they can stand on their own and the government can divest its shares…
If sales do pick up, carmakers eventually could be more profitable than they have ever been because of all the costs they have shed, said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich.
“After you rebound from this artificial low in demand, wow,” Mr. Cole said of the potential for auto sales and profits.
He estimates that pent-up demand for new cars is actually about 4 million vehicles higher than the current selling rate, which in April would translate to 9.3 million a year, according to Autodata Incorporated.
Others, however, point to shifts suggesting that Americans’ desire — and need — for new cars may be cooling….
“We sold to people who purchased cars by refinancing their houses,” said Wilbur Ross, the billionaire financier who has invested in steel mills and auto parts companies….
Lifestyles have changed, too. As many people move back to cities from suburbs, they are swapping three-car garages for a single parking space. Public transit use is up….
Donald Grimes, an economist at the University of Michigan, is forecasting the lowest sales for the driving-age population this year since 1970.
From 1970 to 2001, there were 0.76 vehicles sold per driver in the United States. Now that figure has dropped to 0.4 vehicles per driver, and he does not see much of a rebound in coming years.
The swift decline has spooked the industry. “I don’t think there has ever been a period in our history like this,” Josephine Cooper, Toyota’s group vice president for government and industry affairs, said of her company, which lost $7.1 billion in the first three months of the year. “It is very, very sobering.”