Americans own too many cars
Posted
Jul 08 2008, 01:57 PM
by
Anthony Mirhaydari
Rating:
As $100 fill-ups become the norm and resale values for gas-guzzling vehicles plunge, owners of trucks and SUVs are getting a painful lesson in what economists call "demand destruction." In addition to switching from Ford F-150s to Toyota Priuses, rising oil prices may force Americans to follow Europeans with one car per family.
This would be the worst of all worlds for investors, since not only is the product mix shifting from high-margin truck-based products to lower-margin economy cars, but overall volumes would decline as well.
Merrill Lynch economist David Rosenberg believes such a change is inevitable as drivers in the United States "totally change the way they live and move around" in response to gas prices. Consider that there are 40% more vehicles on the road than licensed drivers. Moreover, the average U.S. household owns 2.2 automobiles -- 10% more than in the early 1990s and 70% more than in 1955. So there is definitely a precedent for fewer cars per family.
One hope is that the lost volume could be offset by sales in emerging markets like China. After all, the number of cars per capita in China is at a level equivalent to the United States in 1915. Given its youth, plus generous fuel subsidies and rising incomes, the Chinese auto market is booming. First-half sales for both Ford and GM were up double-digits in what is already the world's second-largest auto market.
More specifically, annual sales of luxury cars and SUVs are up around 100%. As I discussed in a previous post on the popularity of SUVs in the Persian Gulf, traditionally American indulgences like three-ton Hummers are increasingly within the reach of those enriched by our great need for fuel and imported goods.
But this success will likely be short-lived. Those economies continue to depend on the embattled American consumer. And the subsidies enjoyed by the Saudis and the Chinese are becoming increasingly expensive and inflationary for their governments and their economies.
So despite the boom overseas, global car demand will eventually fall, further battering the troubled auto sector and its investors. Rosenberg thinks 50-100 million autos could eventually be taken off the road in the United States -- and I just don't see international sales compensating for a loss of that magnitude quickly enough. His advice: "Try adding some light rail to the portfolio."
Related reading:
GM sales up everywhere but here
The long, slow descent of GM
The death of the minivan (& Chrysler?)
(Disclosure: I don't own shares in the companies mentioned)
