Crazy thought? I think not. Let’s look at what’s happened in the U.S. automotive industry over the last few years. In the pre-recession days of 2007, U.S. car sales totaled 16.1 million vehicles. In 2008 that number dropped to 13.2 million, then in 2009 to 10.4 million. A 35% drop in two years. That’s enough to create a recession on its own.
Between the corporate bail outs, tightening of credit, pay cuts and job losses, Americans had many excuses not to buy new cars. But surveys showed the number one reason they stopped buying was out of fear. This fear, combined with the new realization that buying a new car every three to four years was a luxury, not a necessity. R.L. Polk statistics indicate over the few short years, the average age of “vehicles in operation” went from 8.4 years to 11 years.
So where are we today, at the beginning of 2013? Analysts presume Americans will buy or lease around 15.3 million vehicles by December 31st, 2013 — up even more than the 14.5 million rebound in 2012. Certainly we’re seeing the results of pent up demand, but there’s something even more important occurring. We’re experiencing a market adjustment to reasonable car sales.
In the past, consumers have been enticed to trade in t
heir current vehicle for a new vehicle regardless of equity. Financial institutions made it easy to take the unpaid balance due from a current vehicle and carry it over to the new vehicle loan. The term in the industry is that the consumer was “buried” in their trade (owing more than it was worth) so the balance would be carried over to the next loan. This became a car buyer’s “drug fix” in that it provided the opportunity to buy a new car before the typical lender would say it made sense. This carryover from one vehicle to the next was becoming an easy way to drive a brand new car every few years, regardless of what was owed.
What is being “righted” in this market adjustment is a reasonably healthy turnover of cars that most likely should be exchanged for newer ones. Ones that get much better gas mileage (even non-hybrids). Ones much safer to drive. Ones that require less maintenance. Ones that have great financing plans, allowing many people to drive newer, safer, more fuel friendly cars than what they have been driving for the same monthly costs. Simply stated, new car purchases that make sense for them.
And yet, consumers will only make this move if they have confidence in the economy. At least enough to replace car payments that could be finished in the next year with newer car payments that commit them to another 5 years. Confidence in the economy is the number one factor in car purchases. Period.