US auto sales rise, as older cars have to be replaced

US autos Dec11.pngDecember’s US auto sales provide a classic example of Kahneman’s illusion, discussed on Saturday.

Initially they appear encouraging to our System 1 minds. As the chart shows (red line), they were the 2nd highest of the year, and one of the few months to top 1.1m sales since the start of the Great Recession. But analysing them with a System 2 approach gives a different picture.

The past 3 years have seen buyers trying to avoid purchases:

• Owners have been hanging on to old cars for as long as possible
• Vehicle scrappage rates are now only 4% of the US fleet
• The average age of the US fleet is nearly 11 years, a record
• They are driving less, with vehicle miles down 1.7% versus 2007 levels

Yet there are limits to everything. Life without a car is very difficult in many parts of the USA, due to the lack of public transport and the vast distances. So it would appear that we have finally got to the point where today’s old cars simply can’t run any more.

As a result, industry estimates suggest we may well see 13.5m sales in 2012. This would better the 12.8m in 2011, but would still be well down on the 15 – 17m range seen in the boom years from 1995 – 2007.

These new purchases will come at a cost, however.

• Buyers are cutting expenditure in other areas, such as personal care
• Some are having to pay 16% interest on ‘near-prime’ loans (10% above normal rates)

None of these reasons provide much support for Wall Street’s System 1-type belief that recovery is finally underway. But they do highlight how companies need to conduct careful System 2 analysis, if they want to develop successful strategies for the transition to the NN.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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