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America’s love affair with the automobile has reached such a level that there is now one car on the road for every person old enough to drive. This statistic may well come to haunt Detroit’s struggling carmakers.
Suburban sprawl and improved car quality have allowed many families to amass not just two but three, four or even five roadworthy vehicles. The median American car is now 9.3 years old, 50 per cent older than in 1990, which is an odd statistic given how easy it has been to buy a new one – until recently that is. The rate at which cars are scrapped should track sales in the long run but car sales have managed to exceed vehicles being retired by a third on average since 1990.
In a pinch, many Americans no longer need to buy a new car as their old one just keeps on running. And, even if their clunker dies, there is a surplus of used vehicles. That pinch might well have arrived and this surfeit is a factor that the US car industry has failed to appreciate.
Last month’s annualised sales of 10.5m units, the lowest since 1983, were amplified by the credit crunch and scary economic headlines. Nevertheless, annual sales levels of about 17m seen during the housing boom may not be “normal” either.
How bad can it get? Subsidised leases, hefty rebates and zero per cent financing may have been responsible for up to 1.5m extra sales each year, so a post-credit-bubble world might look very different. If vehicle density were to stop growing altogether, annual sales could fall by 3.5m from pre-crisis levels.
Even if Detroit’s Big Three see their market share stabilise at 48 per cent, down from 75 per cent two decades ago, there may be demand for about 6.5m Detroit-made vehicles against 9m in 2006. That may only leave room for a Big Two.
US makers are already lobbying the incoming Congress for a lifeline while they slim down. But their key to survival may be to take advantage of a global franchise and depend less on the US. General Motors and Ford have a shot at doing so. Ailing, US-focused Chrysler, on the other hand, may be out of luck.
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