Thursday, April 12, 2012

Car Economy

I've posted before about the fact that for more than a year now I have been living without a car, and loving it!  This morning I was reading an article in The Atlantic Cities citing JD Powers (the car evaluation company) about how young people were no buying the "American Dream"of buying a house in the "burb" with two cars and 2.5 kids.  Rather they were looking at living in areas were walking (or cycling) was a transit option. On a personal note the first generation of my friends' children are now of driving age (scary) but a surprisingly large number seem uninterested (many failing to even obtain driving licenses).  The JD Powers' analysis seem to show that young adults see cars as a tool rather than a status symbole.

One article (especially in a specialized publication that seem to favor mixed development housing etc) does not a trend make, although JD Powers does add weight to the argument.  As a 50 year old who lived for many years abroad (and who bought his first car when he was 33) I am in somewhat of an outlier, and my view of cars has always been as a tool (although I did really liked my ancient Mercedes 300 SEL, but it drove like a pig).  But this is an important trend.

Obviously technology helps, from video conferencing (Skype) to on-line shopping (Amazon and others) make cars far less important - as a friend told me (in the US) he ordered a ladder on Amazon, it was delivered the next day via UPS (I know, I know it sounds ridiculous).  Moreover young people have worse credit score and fewer financial ressources in a market that shows that housing is not a one way bet, and can even act as a anchor stoping them from taking on better paying jobs.

Equally important is the growth of car sales in the US ( a substantial economic industry).  Ever since the   car industry began churning out Model Ts, and excluding the war, the overall North American market has been growing -- increasing its market penetration.  This trend is now over, with a penetration of around 98% of the current population (98% of those who may want a car own a car) the overall growth of the car stock is complete (aside for population growth drivers) which means that future North American sales are driven by replacement of aging stock.  That creates a zero sum game for manufacturers which will in the medium term will drive down (already tight) margins.  

Add this factor to the trend in young Americans and you can see future trouble for the car industry

BTW I rented a Dodge Journey this weekend, not exactly a great vehicle.  It was alright I guess, I like the easy setup for the bluetooth (that allowed my iphone music to play in the stereo system), but the driving experience left a lot to desire, first whenever you try to pass another car on a country road the front wheel drive system woud not really compensate for torque so that the steering would pull  (a lot) to the left.  Although a new vehicle (less than 6,000km) it was already starting to "creak like a taxi".  On the bright side the driving position was comfortable.


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