This One Chart Perfectly Explains Why The Auto Market Is Doomed
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Title : This One Chart Perfectly Explains Why The Auto Market Is Doomed
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Title : This One Chart Perfectly Explains Why The Auto Market Is Doomed
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Earlier today Bloomberg posted the following chart comparing new vehicle sales in the United States to scrappage rates of old clunkers. Now, what should immediately catch your eye (even without the huge red circle we felt compelled to add), is the fact that new car sales have been massively outstripping scrappage rates for the past 5 years.
Of course, as many of you will undoubtedly note, there are plenty of legitimate reasons why new car sales may outstrip scrappage rates in certain markets. We completely agree...but, unfortunately, none of them apply to the U.S. automotive market.
Of course, as many of you will undoubtedly note, there are plenty of legitimate reasons why new car sales may outstrip scrappage rates in certain markets. We completely agree...but, unfortunately, none of them apply to the U.S. automotive market.
One reason could be that the market is simply under-penetrated. That said, with a fleet of ~265mm light vehicles on the road today vs. a driving age population of only ~255mm people, or just over 1 car per person, we would say the market is fairly penetrated.
Another possible explanation for this phenomenon could be population growth. Taking a look, we find that new car sales outstripped scrappage by about 5 million units in 2016 which, on a base of 265 million vehicles, implies population growth of 1.9%. Unfortunately, the U.S. population is growing at exactly one-half that rate...
Which leaves us with one remaining explanation: a massive debt and lease-fueled auto bubble that has been sparked by a ridiculous buying spree courtesy of everyone with a pulse suddenly rushing out to trade in their 10-year-old Maxima for a brand new BMW....because you can 'afford' it so long as you can get approved for a 0% interest, 8-year loan which pegs your monthly payment at that magical $400 mark...
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Another possible explanation for this phenomenon could be population growth. Taking a look, we find that new car sales outstripped scrappage by about 5 million units in 2016 which, on a base of 265 million vehicles, implies population growth of 1.9%. Unfortunately, the U.S. population is growing at exactly one-half that rate...
Which leaves us with one remaining explanation: a massive debt and lease-fueled auto bubble that has been sparked by a ridiculous buying spree courtesy of everyone with a pulse suddenly rushing out to trade in their 10-year-old Maxima for a brand new BMW....because you can 'afford' it so long as you can get approved for a 0% interest, 8-year loan which pegs your monthly payment at that magical $400 mark...
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