Why New Car Sales Are Dropping (Regardless Of The Economy)
It seems that nearly every week there is an automotive article griping about a lower sales outlook. Many times the writer of the article or the interviewed auto industry representative blames the economy. While the economy has certainly had an effect on car sales figures, there are a host of other reasons why new car sales are dropping that I don’t feel are being discussed much.
Built to Last
Cars are lasting longer due to better quality control, better materials, and less mechanical parts. It follows that consumers will have less need to buy a new car if their car is still working well. A common excuse for going out new car shopping is, “my car is falling apart”. To illustrate the point, a few months ago some fellow drove his Chevy past its 1 millionth mile!
So Many Choices
In the past, I have discussed the reproductive habit of products (by which, for example, a vehicle becomes fifteen different vehicles each becoming more specialized) and it is really having an effect on transportation. Aside from the dozens of car/truck types we have, we are increasingly seeing more forms of transportation available, which is lowering the overall market share of cars in the transportation industry. Just to give you a rough idea, consider that we have:
- Limo Service
Since there is a lot more growth out there for some of these options, cars have pretty much reached saturation in the USA, and therefore it is unreasonable to expect any real growth here.
Leasing costs less than buying a new car, but customers are paying more for the actual time they hold the car than if they had purchased it outright. Over the last few years, in an effort to push more cars off the lot, dealers have been advertising lease deals much more prominently, and this has led to tons of used certified cars coming back and competing with new car sales.
As car manufacturers keep improving the methods and materials used in car manufacturing, cars in accidents aren’t totaled as often today as in the past. While some materials being used nowadays weigh less, they also are stronger than heavier metals used in the past, and can resist more force. Additionally, as car mechanics keep improving their methods for fixing cars, there are less “unfixable” situations than there used to be. All this means that less cars are being taken out of commission, and there is less need to replace them.
For Whom The Tolls Rise
All over the country, tolls are rising, and rising fast. Part of the reason is cities are trying to cut down on the smog and pollution. Other reasons include funding rising bridge and tunnel maintenance costs, while others involve states (like New Jersey) trying to raise revenue for other purposes, such as getting out of debt. If it costs more to get places in a car, it figures that people will be more likely to take alternate forms of transportation where that cost is distributed to many people (such as a bus), or not present at all (such as going by foot).
Gas prices have gone up more than 25% in the last 2 years, and that has made many people hold off on buying a new car (although small car sales are up, they haven’t made up for all the other categories’ decline). The higher the holding costs of a car go, the less buying we’ll see, since other options will get more attractive.
Shopping In Your Undies
In the 90′s, a major reason for having a car was so you could go around shopping and doing your errands. Nowadays, you are able to go shopping in your undies online to buy just about anything and have it delivered, and that means there is less of a benefit to having a car. For example, in the past, mothers might have taken the SUV to the supermarket to help bring home the groceries. Over the last few years many more mothers are opting to purchase their food staples from online grocers who deliver right to their door (such as Peapod, by Stop & Shop or Amazon Grocery) not just to save on gas, but also for convenience and wider selection of goods. If you don’t need all the space in the back for grocery bags, you might not buy that SUV.
Additionally, research has shown that Americans are shopping online more often due to gas prices rising.
Working In Your Undies
One of the other major reasons for having a car was to get to and from work. More and more these days, companies are opting to offer a telecommuting option for workers. The US Department of Transportation reports that in 2006, 32% of workers worked from home at least once a week. In 2007, that number jumped to 44%. We have yet to see the numbers for this calendar year (when gas actually rose the most), but you get the idea. With less traveling to and from work, it pays less to hold on to a car.
The Past Can Come Back To Haunt You
Just like any other market, when the car market gets flooded with 16 million new cars sold each year, that’s 16 million used cars the new car dealers must compete with the following year. Multiply that by several decades and you end up with many used cars being available. In 2005, for instance, the U.S. Census Bureau reported 241 million cars registered. That’s an awfully large amount of backwash…
Excuse Me Sir, Can I Borrow…
Lastly, used cars are simply cheaper than new cars, and the worse the economy gets, or is perceived to be, the bigger the portion of car sales we can expect to go to used cars. To compound this, due to the sub-prime meltdown, getting any kind of loan is harder, which means less people are capable of purchasing a new car even if they wanted to.