This One Chart Perfectly Explains Why The Auto Market Is Doomed

Tyler Durden's picture

Earlier today Bloomberg posted the following chart comparing new vehicle sales in the United States to scrappage rates of old clunkers.  Now, what should immediately catch your eye (even without the huge red circle we felt compelled to add), is the fact that new car sales have been massively outstripping scrappage rates for the past 5 years.

Of course, as many of you will undoubtedly note, there are plenty of legitimate reasons why new car sales may outstrip scrappage rates in certain markets.  We completely agree...but, unfortunately, none of them apply to the U.S. automotive market.

One reason could be that the market is simply under-penetrated.  That said, with a fleet of ~265mm light vehicles on the road today vs. a driving age population of only ~255mm people, or just over 1 car per person, we would say the market is fairly penetrated. 

Another possible explanation for this phenomenon could be population growth.  Taking a look, we find that new car sales outstripped scrappage by about 5 million units in 2016 which, on a base of 265 million vehicles, implies population growth of 1.9%.  Unfortunately, the U.S. population is growing at exactly one-half that rate...

Which leaves us with one remaining explanation: a massive debt and lease-fueled auto bubble that has been sparked by a ridiculous buying spree courtesy of everyone with a pulse suddenly rushing out to trade in their 10-year-old Maxima for a brand new BMW....because you can 'afford' it so long as you can get approved for a 0% interest, 8-year loan which pegs your monthly payment at that magical $400 mark...

 

So what is a more 'normalized' auto SAAR for the US market?

Well, as we mentioned above there are roughly 265mm light vehicles registered in the U.S. today compared to only 255mm driving age people, or just over 1 car per driver...which seems somewhat reasonable. 

Now, putting aside population growth and other metrics for a moment, if only 13 million cars are getting scrapped each year, that implies a 20-year average useful life and a 'normalized' annual SAAR of 13 million...not that complicated but somewhat inconvenient for the auto OEMs.

The problem is that the useful life of cars has actually improved dramatically over the past 20 years which only makes the 'normalized' number even worse.  Per data from the Bureau of Transportation, the average age of vehicles has increased at a CAGR of 1.6% per year over the past two decades...more than enough to offset population growth. 

Autos


Just to illustrate why that is a problem, the following table shows the implied U.S. auto SAAR based on varying useful life assumptions....each 1 year expansion in a vehcle's useful life cuts about 1mm out of required annual sales.

Autos

 

Said another way, in order to maintain the 18mm annual selling rate of vehicles that the US obtained in 2016, each driving age person would have to own 1.4 vehicles.  Now, while we fully understand there are a minority of 'super users' of almost any product, we're pretty sure the average user only needs 1 car at a time.

Autos

In conclusion, with full penetration rates, increasing vehicle useful lives and the threat of autonomous vehicles increasing utilization rates, it's difficult to see how "normalized" auto sales aren't substantially lower than the current run-rate.  Moreover, with interest rates starting to rise and auto buyers extremely sensitive to monthly payments, we suspect the auto SAAR game is reaching the end of it's useful life.

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kbohip's picture

I will not be trading in MY 15 year old Maxima for a BMW.  Bring More Wrenches indeed.

SafelyGraze's picture

what we need is, is to go ahead and make ownership unlawful if the vehicle is more than 5 years old

 

Creepy_Azz_Crackaah's picture

ZH is getting pretty doom and gloomy lately. Do they not know that the Fed will "fix" everything?

That and Bitcoin. Bitcion will save us all.

NoDebt's picture

Not my problem.  I steal a different car for myself every few weeks or so, swap the plates and when I'm done I burn it on the side of the road.

You would be shocked how many people want me to "steal" their car from them.

 

MagicHandPuppet's picture

"You get a car!  You get a car!  You get a car!  Everybody gets a car!"

 

https://www.youtube.com/watch?v=hcJAWKdawuM

doctor10's picture

A 7 yr auto loan means the manufacturers have to build to that standard-nothing go bust in 3-4 years

Ex-Oligarch's picture

So, do the feds just repossess the car after five years, or do they break the windows first?

new game's picture

no sympathy from me. wallet purger...

NoDebt's picture

I'll be right over.

 

Pernicious Gold Phallusy's picture

I bet you could charge for that.

a Smudge by any other name's picture

No way. We just have to stop people from getting reliable Japanese cars and return to shitty American auto production. Somebody call China and tell them we want GM back.

dasein211's picture

Dittoz. American cars are fucking rolling trash bins. I'll take a Japanese or Korean car over an American one EVERY TIME!! And don't even talk to me about fucking piece of shit Kraut cars. The turbos in those shitty euro dumpsters last 6 months tops and the cost to repair a turbo is the same cost to buy a ne Japanese car.

TahoeBilly2012's picture

My 2005 F150 4x4 has 255K miles, purrs like a cat. Changed the tranny only cause I burned it up backing a trailer up a hill, alternator went 250K miles, can you beleive that.

new game's picture

millionaire(s) next door drive  f-150's til whenever. keep drivin it and nobody will know how rich you are.

Pernicious Gold Phallusy's picture

I used to love driving my 1994 F-150 to swanky charity events. Too bad it would have cost more to fix than to buy a 2003 diesel Ram with a manual.

Wild tree's picture

2003 F250 diesel. Second transmission and reverse is going out in it. 6.0 diesel and getting 20 MPG on the road. Love the truck, hate the tranny.

Archibald Buttle's picture

i just wanted to point out that hating trannies is politically incorrect nowadays. you are in timeout for the next 5 minutes!

Pernicious Gold Phallusy's picture

Kaitlyn Jenner slapped herm wiener so much herm's leaking tranny fluid all over the place.

Refuse-Resist's picture

If it doesn't have 3 pedals, you might want to consider buying something else if you plan on keeping it a long time.

Automatic transmissions are great for at least 5 years. But the newer ATs are so complicated that you can spend more rebuilding one than your car is worth.

No thanks. And most modern ATs have fucked up logic and somehow are always in teh wrong gear, just like my old C6. But in the newer versions, instead of 'kicking down' one gear, they hvae to kick down 3 and there's at least a 1 second delay when the driver puts the pedal to the floor -- nothing happens while the computer decides which gear and how far to open the throttle.

Fuck electronic controlled drive by wire cars. They suck. They don't respond to control inputs very well and all the nannies make driving a real sensory pain in the ass.

 

I'll keep driving M/T cars till I can't drive any more. CVTs suck the worst, followed by dual clutch autos (DSG -- hello VW $5k rebuild cost).

 

 

iampreparedru's picture

My 2011 f250 diesel with 124,000 has a blown piston. Common failure.

Refuse-Resist's picture

I hear the V10s are not that good either.

GhostofBastiat's picture

Later model Chevy PU, 150K no issues, MB(Kraut Mobile)15 y/o supercharged...120K no major issues...(forget about BMW-Bring more Wrenches is right!-Who cools the alternator with oil?  BMW)

Honda toyota very reliable, Lexus Acura mostly reliable, Nissan-sort of reliable, Infiniti-least reliable from this bunch...

Kia/Hyundai---Decent drivetrain, issues with interior fit and finish---Genesis/Equus-extended warranty required, also fit/finish  K900 and Azera as well.

 

So my experience has been possibly opposite of yours

new game's picture

i mostly concur. never another american piece of shit(generalizing) BUT, resale tells the true story. chevy ford and ram resale blows donkey dick. end of story.

simple shit maynard...

Refuse-Resist's picture

My experience says otherwise. VW Turbodiesel 230k on the clock. 2 mechanical failures in 12 years: fuel pump and alternator clutch pulley.

 

That's it. A few brake jobs, 22 oil changes, 12 air filters, 1 clutch, 7 sets of tires (so far), and 1 set of Koni struts. Still knocks down 42 mpg average.

Best car I've ever owned.

de3de8's picture

Alternator clutch pulley? Lol again

Bwana's picture

Gee! I'm on my second vehicle and I'm 71. My first was a 1966 GMC HD 4x4 which I maintained and drove 850,000 miles. The one I am driving now is a 2002 Dodge HD diesel. It only has 257,000 miles on it so I figure it will outlast me. The key is maintenance. It also help to understand the machine and drive it within its limits.

Bwana's picture

Gee! I'm on my second vehicle and I'm 71. My first was a 1966 GMC HD 4x4 which I maintained and drove 850,000 miles. The one I am driving now is a 2002 Dodge HD diesel. It only has 257,000 miles on it so I figure it will outlast me. The key is maintenance. It also help to understand the machine and drive it within its limits.

Bay Area Guy's picture

"what we need is, is to go ahead and make ownership unlawful if the vehicle is more than 5 years old"

Interesting.  I believe Singapore has pretty massive tax and licensing incentives in place to do just that.  I know a few people over there that have cars and they typically have to change them within five years.

Of course, as geographically small as Singapore is and with a pretty damn good transportation infrastructure, only 1 in 12 people own cars in the first place and for those that do, it's more of a status symbol than a necessaity.

GhostofBastiat's picture

I remember that in the 90's you could get low mileage motors from Japan, as they binned the cars after 60K, so you could repower your celica for $800 in Socal....

SunRise's picture

You don't own it ever - Try not paying your taxes on it.  Serf City, USA.

Hal n back's picture

one thing not figured in the above is how many used cars are sitting on lots and ho wmany new cars, above a normal inventory are sitting on lots,. This latter one for new cars is probably over 500k cars as gm is sitting with almost 105 days vs a goal of 60 days.

 

any way you look at it, or explain it,  its a problem.

khakuda's picture

I just ran my Maxima for almost 24 years. My advice is to keep your car for another five years and then get rid of it because it got expensive after 20 years.

kbohip's picture

Mine's a 6-speed manual with 170k miles on the original clutch.  95% city driving too so I'm pretty surprised at that.  I think about getting a newer car sometimes but it's hard to justify when the car has zero rust, shiny paint, and everything works right all the way down to the heated steering wheel.  Hehe, the car's worth next to nothing now anyway so even if it were to die tomorrow it wouldn't be a huge deal.

Refuse-Resist's picture

Yep. 1982 Ford F-100, 2005 Jetta TDI 5MT, 1993 Honda XR250L.

I have 3 ways to get to work. If one breaks down, I have the other two.

No new car needed. Total maintenance, fuel, and insurance less than one new car.

I like options.

Refuse-Resist's picture

The VQ35 engine is a thing of beauty, and it has a timing CHAIN.

Memo to Honda and Toyota: stop using rubber timing belts and I might buy your cars again.

Black Warrior Waterdog's picture

$500 is the average monthly car payment in the U.S.

The average family in the U.S. couldn't come up with $500 in an emergency situation.

Let that sink in for a while.

Creepy_Azz_Crackaah's picture

And that's just the starting rate for a hooker.

DAMN! WAY to much income inequality goin on... Max hooker pay laws are required. For the children...

dasein211's picture

Where are you buying hookers?! You are way overpaying. Most botches nowadays fuck for free beer.... or Oxys.

Creepy_Azz_Crackaah's picture

The big city (good part) isn't cheap.

GhostofBastiat's picture

I wouldn't bang that oxy ho with your tool!

Refuse-Resist's picture

A coulpe grams of methamphetamine goes pretty far around here I hear.

Bill of Rights's picture

What a bunch of losers the New Hampshire legislators are , they're all whining over Trump Outing their big secret You're all a bunch of fucken fakes ...

Free State my ass...