Americans are driving less each year. For the first time since records began in 1970, average vehicle miles per person has been declining for over a decade. The trend is now so well established, it is highly unlikely that the current collapse of oil prices back to normal levels will change the overall picture.
This has enormous implications for companies and investors. It means we have reached ‘peak car’ moment in the US market, and should expect auto sales to slowly decline in future years, even if the overall population continues to increase.
The chart above tells the story, based on official data for vehicle miles travelled, US gasoline prices and US population:
- It shows average vehicle miles travelled per adult aged 16+ (the normal US driving age) on the horizontal axis, and average US gasoline prices on the vertical axis, since 1970
- Average miles driven jumped from 8170 miles in 1970 to 9061 miles in 1980, to 11353 in 1990 and 12922 in 2000
- Higher prices from 1978 to 1980, when they jumped from $2.34/gal to $3.48/gal, temporarily reduced miles driven
- But then the period between 1981 - 2004 saw a 46% jump in miles driven to 13274
- Since then, they have fallen 8.4% to average 12162 miles in 2014
There are two main reasons for the decline:
- The first is the ageing US population: people drive less as they get older as they stop acting as a taxi service for children, and no longer drive to work when they retire
- The second is that younger people no longer see driving and car ownership as a ‘rite of passage’
- The Millennials, born between 1983 – 2000, are far less likely than their parents to have a driving licence, and often prefer other forms of transport to cars
- Thus less than 3 out of 4 high school seniors had a driving licence in 2010 according to Census Bureau data
The key issue is that the arrival of social media means young people have many more options today for staying in touch with their friends They are also much more flexible in their transport preferences, often preferring to walk, cycle or take public transport where possible, instead of driving.
In addition, the inner city race riots of the 1960s/70s are now thankfully a distant memory. And so instead of seeing a ‘flight to the suburbs’, we are now seeing the opposite - a ‘return to the cities’, as ageing Boomers prefer to live closer to their friends and local amenities
Cost, of course, is also a key factor. As an analysis in Fortune magazine shows, new car prices are now 30% higher in real terms (adjusted for inflation), than in the past. Insurance costs have similarly risen more than inflation.
Thus today’s new 50th Anniversary edition of the Ford Mustang has a starting price of $23.6k, compared to the $18.3k cost in 1965 of the original model, in today’s money. And the average new car price today at $32k is even more expensive
The vehicle miles driven data thus highlights the profound changes underway in US consumer demand patterns, as we discuss in chapter 11 of Boom, Gloom and the New Normal. Companies and investors who still hope that the future might be the same as the past, have a nasty shock ahead of them.