US auto market reaches a fork in the road

US autos Nov12.pngThe US auto market is reaching a critical fork in the road. The consensus view believes that full recovery is well underway. They see the slowdown in October’s sales as purely being weather-related, due to the arrival of hurricane Sandy.

Clearly this must have had an impact. But as the chart above shows, it may also be significant that October’s sales (red square) dipped back to the 1.1m level:

• Between September 2008 – January 2012, there were just 3 months when sales were above 1.1m/month. This had been the minimum level each month pre-2008
• As a result, relatively few owners have been trading in their vehicles for a new car and used cars have now become relatively expensive
• Equally, the average age of the auto fleet has risen to a record 11.1 years, making it essential for many to replace ageing and broken-down vehicles

Against this background, it is no great surprise that some buyers have been replacing old cars with new ones, especially as financing has become easier to obtain.

But does this mean that we are about to return to the days of 15m-17m cars being sold every year, as the optimists would have us believe? This seems unlikely, as auto sales are now becoming a ‘replacement market’.

There are fewer young people entering the market, and cars last much longer these days. So the US population is most unlikely to need SuperCycle levels of new cars again.

Instead of hoping for a return to the past, companies should instead focus pro-actively on the new opportunities ahead. The need to increase fuel economy, and a demand for cheaper and more affordable vehicles are likely to be the major growth areas for the future.

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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