Auto Sales Recovery Has Long Road Ahead

ACME, Mich. (Detroit Free Press/MCT) -

Americans will be buying between 16 million and 17 million new vehicles a year by 2015, according to one analyst who says the industry’s recovery is in its early stages.

Itay Michaeli, an analyst with Citi Investment Research, also said it’s not true that pent-up demand – buyers who must replace 15- to 20-year-old vehicles – is driving the recovery. He notes sales went up last year even though the U.S. fleet aged, meaning pent-up demand had “zero” impact on sales.

The Center for Automotive Research, sponsor of a conference this week at Grand Traverse Resort here, has a more conservative forecast: U.S. sales of only 15.4 million this year; 15.7 million next year and growing to 15.9 million for 2015 and 2016, said Sean McAlinden, chief economist for the Ann Arbor, Mich., research center.

R.L. Polk data released Tuesday shows the average age of all light vehicles on the road now stands at a record of 11.4 years, based on a review of over 247 million U.S. car and light truck registrations earlier this year.

A main reason for caution: Job creation is modest at best.

“No matter how you look at it, this has been a subpar recovery,” said Mustafa Mohatarem, General Motors’ chief economist. “Companies are just not hiring.”

At GM, “we planned for the recovery and put capacity in place,” Mohatarem said of pickup demand. The plan has not deviated from the start of the year, when GM was preparing to launch the new family of full-size pickups that are now on sale.

Economists speaking at the conference in Michigan attempted to bust a number of myths surrounding trends in the car market.

One of those myths is that young people don’t want to buy cars.

They want to. They just can’t afford them yet.

From 2001 to 2010, millennials – those born after 1980 – have seen a 44.2 percent decline in their net worth. Their income has fallen 6 percent and student loan balances grew 91 percent, said Anthony Pratt, director of forecasting for R.L. Polk. In terms of their personal lives 20 percent are delaying marriage and 24 percent of college graduates are back living with their parents or other family members.

But those under 30 are getting driver’s licenses at a lower rate. In addition to not being able to afford new cars, many young consumers are discouraged by the high cost of owning a vehicle.

For those aged 16-19, insurance costs almost $3,000 or 15.5 percent of this group’s median wage. It drops to less than $2,000 or 8.3 percent for ages 20-24 and takes another significant drop at age 25.

While the young are not buying cars now, Mohatarem expects them to be buyers as they age and their finances improve.