While hearing a lot about the demise of the auto industry recently, I came across some information in that I found very interesting, information one doesn’t normally hear a lot about from mainstream media. This information actually offers some hope for the recovery of the industry much sooner than a lot of people may think. That idea doesn’t really surprise me because I’m convinced that some, if not most of the news about how American manufacturers haven’t been building or planning the right products is, simply stated, hyperbole.
Here’s what the gist of the information is and why I believe a relatively quick recovery almost has to happen. The average age of cars on the road today is aver 9 years old. The age of light trucks is over 7 years old and by 2011 there will be some 35 million cars on the road at least 10 years old. When one does the math, even at 15,000 miles a year, a very conservative number, what that means is that those vehicles have at least 150,000 miles on them. That many miles means lots of dollars have to be spent on maintenance and upkeep.
There are some 250 million vehicles on the road, 5% of which are scrapped every year. 12.5 million cars off the road every year while at present, only 9 million cars are being built. According to industry metrics, three quarters of current sales are replacement vehicles and that demand will increase to 13 million cars by 2012. Now while some people say these numbers are a little optimistic because people are driving less and keeping cars longer, keep in mind that there are 2 million new drivers coming on line every year. Also, based on historical data, GDP directly correlates to auto sales and a 4% increase in GDP propels auto sales up some 7% and when you combine that with cars being scrapped, demographic changes from boomers children beginning to drive along with economic recovery which will happen, it isn’t unreasonable to expect sales of new vehicles to reach the 16 million mark again in 5 years. And by the way, that doesn’t include sales in China and Russia where GM has a very strong presence.
Interestingly it seems as though used car prices are starting to rise which makes new cars more attractive and with the inventory of new homes finally dwindling, construction will spool up and that means sales of trucks will improve. Also, congress is mulling the idea of a 3 to 5 thousand dollar voucher to people to junk older cars, which will not only help stimulate sales but will help get polluting cars off the road.
A lot of people are unaware of is the fact that the Buick LaCrosse and Chevy Malibu have earned best in class in reliability studies from J.D. Powers & Associates, and the Ford Fusion won a comparison study against the Honda Accord and Toyota Camry. The Edge is a very solid car and the new F150 is top drawer once again. The problem U.S. automakers face is one of perception and that takes a lot of time to overcome. While Ford, GM and Chrysler are working on smaller platforms, we need to hope that China doesn’t import the Chery and India doesn’t bring the Nano to America before U.S. automakers get it together.
With regards to the Congressional Auto Task Force, well let’s just acknowledge that there have to be some changes made with the Detroit three but those changes have been in the works for some time and I’m no fan of government dictating to the auto industry. There need to be some serious changes and that will be painful. And like it or not, new labor contracts have to happen to make profitability possible on smaller, lower grossing platforms. But all of that will take time and serious negotiations and sacrifice as well trimming the number of dealerships across the country, something that will in fact be very painful but will have to be done. U.S. automakers may have been a bit slow on the uptake, but they didn’t and don’t need government telling them how to build cars.
