How a Used Car Shortage and Economic Rebound Could Lead to a Banner Auto-Sales Recovery
After a dismal 10 million vehicle sales year in 2009, the U.S. auto industry could be headed for a rebound this year and next, with 12 million cars moved this year and 15 million next year. That could happen in part because after a long period of dealership death, there aren't a lot of good quality one- or two-year-old used cars around as alternatives.
A rebound of that magnitude would be a pretty big stimulus for overall economic recovery. I think the auto industry is indeed headed for a very good two years, and another significant factor is the federal money poured into battery car manufacturing, and the new markets arising from this novel form of transportation. EV impact will be small at first, but it's likely to grow quickly.
The encouraging sales projections come from Jeff Bennett, an automotive marketing professor at Northwood University in Midland, Mich., home to a giant new auto battery plant. Northwood graduates managers for the auto industry and dealerships, and Bennett predicts a spate of new hiring this year.
Bennett is a former dealer himself, having spent 27 years with Chevrolet and Toyota franchises in Ohio and Michigan. His thinking is strategic, based on the average age of cars on the road today, and he sees some parallels to the unprecedented demand for new cars after World War II. But the indicators today are a bit more modest. "There were no cars on the market from 1939 to 1946," Bennett said, "and people were driving seven or eight-year-old cars at a time when 50,000 miles was a lot to have on the odometer." No wonder auto sales exploded as the baby boom began.
Today, Bennett says, Americans have delayed buying new cars because of economic uncertainty. The result, he said, is that there are a whole lot of 12 year old cars on the road with 100,000 miles on them. J.D. Power & Associates says the average trade-in age for cars is creeping up, from 5.8 years in 2007 to 6.2 years last January. Today's cars are also remaining presentable a whole lot longer than they once did. And sales have been off so much that in the last two years more cars were scrapped than sold.
With the economy showing modest recovery, people are heading back into dealerships again, and Buick dealers are complaining about a lack of inventory. Chrysler, until recently the poster child for the industry's woes, announced last month that it is adding 1,100 workers at a Detroit Jeep plant â€" good news in a state with the highest unemployment in the nation.
Unemployment dipped significantly in April, falling in 90 percent of metropolitan areas, according to the Huffington Post. There's been a huge spate of new hirings by carmakers adding capacity for new EVs that will start their rollout later this year, and battery manufacturers opening plants (particularly in hard-hit Michigan). The Department of Energy is stimulating the EV market in nine metro areas with 4,600 free charging stations.
"If people are looking for one- or two-year-old cars to buy, they may find that there's literally nothing out there," Bennet said. "That will lead them to buy new." Anecdotal evidence he gathered at car auctions around Michigan indicates a steady increase in the value of used cars, and an overall shortage. That's fueled by a collapse in the leasing market (it's down from 20 percent of the market to a negligible percentage), which traditionally feeds the used car auctions.
"I'm seeing rental cars for sale with 30,000 miles on them, and that's a lot," said Bennett. "It all points to a stronger new car market this year and especially next year."
As goes the auto industry, so goes the U.S. economy. An April study by the Center for Automotive Research said that the nation's 1.7 million direct auto-related jobs impact more than eight million other jobs in the private sector. The auto industry spends up to $18 million on research and product development, half a trillion on employee compensation, and is "a major driver of the overall manufacturing contribution to the GDP."
According to Kim Hill, director of the Sustainable Transportation and Communities Group at CAR, "It is difficult to imagine manufacturing surviving in this country without the automotive sector."
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