Down trending arrow in the United States

Why are car sales falling? Look to the junkyards…

While the news about slowing car sales has been fairly consistent, the theories about the source of the slowdown have been varied. One new hypothesis, however, may have identified the problem squarely.

 

Several indicators would imply that sales figures should continue trending upward:

  • The number of licensed drivers increases by about 2 million each year.
  • The number of registered vehicles rises by about 3 million a year.
  • The labor market is strong.
  • Financing is still affordable.
  • Gas remains cheap.

Given those factors, the question remains, “Why are car sales slowing?”

Enter the wildcard of the “replacement rate,” or how often cars and trucks are sent to the junkyard. In the past 20 years, close to 13 million vehicles fell from the U.S. fleet each year. That’s far less than the number of vehicles sold annually for the past five years. Eventually, the numbers finally caught up with Detroit. The more customers held onto their vehicles, the less went to the sales lots.

The average vehicle on the road today was built in 2005. Cars and trucks made since the mid-1990s are much more reliable than those made previously. Essentially, the auto industry is starting to lag a bit because it did a great job of making reliable vehicles.

Another potential factor is pace of innovations and the anticipation of what might be just around the corner. Customers could be waiting to move from their presently reliable car because they’re waiting for the “car of their dreams” that’s just a few years away.

The slip in sales is probably not surprising to auto executives, though navigating the decline may be a bit more elusive. Most likely we will see production numbers lowered and incentives raised in order to entice customers to welcome a new car in the driveway and send the old reliable to the junkyard.

(Source: www.bloomberg.com)

Let us know! How is your dealership staying competitive in the midst of the sales slowdown?

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