The U.S. auto market had a stellar 2012 with the total market
size growing 13.4% to 14.5 million units. For 2013, the U.S.
automakers are forecasting growth of about 6%. Based on the
improving economic outlook, an average age of vehicles in the U.S.
above historical norms and the improved financial standing of the
major auto makers, we expect to see moderate-to-high growth in the
next two to three years.
Factors Supporting Growth
There is still a pent-up demand for vehicles caused by the great
recession of 2008. The U.S. auto market collapsed in 2009 to
10.4 million units from 16.1 million in the previous year. Since
then, it has been a path of recovery with annual sales reaching
closer to pre-recession levels.
A considerable number of customers postponed buying new vehicles
or bought second-hand vehicles. This is indicated by the fact that
the average age of a vehicle in the U.S. peaked to 11 years in
2012. Thus, the brisk growth rates that the auto industry
witnessed in the last couple of years is nothing but a recovery
from the after-effects of the economic collapse.
Although the general improvements in the quality of vehicles and
safety features have resulted in cars lasting longer, an average
age of 11 years suggests that customers delayed buying new vehicles
due to high unemployment and an uncertain future. This scenario is
likely to change if macro-economic fundamentals continue to
improve, albeit gradually. To see the history of the average age of
U.S. vehicles, click
The unemployment rate seems to be slowly but steadily heading
southwards and the housing market too rebounded in 2012. As more
unemployed find jobs and/or buy new houses, demand for vehicles
will pick up again. This definitely works in favor of the U.S. auto
There was never a greater focus on fuel efficiency and with the
introductions of new models with better mileages, replacing old
vehicles makes sense economically. Topping all of this is the low
interest environment created by the actions by the Fed. The low
loan and lease rates will certainly help attract buyers looking to
replace old vehicles.
Long Term Challenges in US Auto Market
However, in the long run, the growth rate is likely to slow down
as there are demographic factors that act as natural barriers to
the growth of the auto market and older vehicles are replaced in
the coming years. Historically, the total number of passenger
vehicles (i.e. cars and light trucks) in the U.S. has remained in
the region of 2-2.1 vehicles per household. (Right now, there
are about 120 million households and 245 million passenger
vehicles.) Note that there isn't too much of upside to the figure
of 2.1 since, in general, you'll typically find two working members
in an average household.
The historical average growth rate for the number of households
has been more or less equal to adult population growth (~1.2%
annually). Therefore, you can expect the total number of
vehicles in the U.S. to rise by a similar rate in the long term. To
sustain a higher annual growth rate than this figure, the
automakers need to convince the public to replace their vehicles
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