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Americans own too many cars

Posted Jul 08 2008, 01:57 PM by Anthony Mirhaydari
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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)

Comments

 

Yes, big government will always make the situation better. Just look at the excellent management of your social security funds, the wonderful economy of Cuba and the amazing economic success in Russia.  If you believe that the current brain trust in Washington is capable of making better decisions with your money than you are, the IRS will accept your donation but please stay out of my pocket and please do not reproduce!!

Nothing is free - someone pays for it.  Leave money in the hands of individual consumers and producers.  They make the best decisions with it because they own it!!

With a family of 5 living in an area where our gas guzzling Durango gets us out of the driveway during the winter, we will not give it up any time soon.  Of course, if the auto companies could come up with a super effecient, 7-8 passenger, 4wd, AFFORDABLE vehicle, I'm sure we could make the switch.  For work purposes, we use a much smaller economical vehicle.  The Durango is only used twice a week .

We need to make wise decisions at all times and adapt our lifestyles to what we can afford.  Downsizing to just one vehicle would not be wise for our family.  We do not live in an area with public transportation, so this is not an option.  

I would love to see my 6'3" husband squeeze into one of these itty bisty European cars, as well as trying to fit three carseats and myself into it.    I don't believe anyone should be forced to give up our vehicles just because an environmental group thinks we should.  If Americans want gas guzzlers, or vehicles in general, let them have them.  Each individual/family must decide what is best for them.  At the same time, we do need to make good choices.  

As usual, We the People are expected to make the large and small sacrifices to compensate for others' greed, indifference, incompetence.

Hope everyone's mad enough to vote ...

MASS TRANSIT, it's the only way I would ever be able to give up any of my vehicles. My wife, daughter and I all work in different directions and at different hours. None of our schedules overlap to allow group commuting.

Also I am stuck with the vehices I have. No one wants them. So I just have to drive them and press on.

Fewer cars per household may happen, but not for the reasons you might think.

Some of the reasons I can think of--

Replacing an older car or two with a smaller car --

Higher cost of new car, insurance, and taxes

Reduction in number of people in household (Kids move out)

Retirement thus reducing the need for multiple cars.

Why don't we lower the speed limit to 55 mph like we did in the 70s?

This guy has little or no idea what he is talking  about.  If i own 18 cars i can still drove only one at a time.  Also its not the F150 owner who is hurting. Its the guys/ladies who own the Expedition or the Escalade or the the other real big gas suckers who are hurting.   Yesterday i was a dirver at an auction here in the midwest and they couldn't go so much as an opening bid on an Expedition!  Shame on the compamies for even making them to profit on big time!  Now we all suffer with 4 dollar gasoline and 5 dollar diesel!  

Yeah no.  The one car family is a ridiculous thought in this day ang age of multiple incomes in the household.  Sure oil will run out someday.  By then, we'll all have air and  hydrogen powered vehicles.  Maybe solar.  I certainly hope so anyways.  Hopefully O'bama will make the automakers make something that's a little more than relatively efficient with an view to the green machines.  Nothing for me to do til then but keep the two cars as both of us head off to work in separate directions.

I agree with most callers, more than 1 vehicle is OK. Make your main communter a fuel efficient one (24 MPG or better) and save the gas guzzler for special purposes. I do not say this because of "Climate Change" remember the earth was ALOT warmer in the past with ALOT more CO2 in it than now and that was when [man] was not around. We can change our habits and keep the planet greener WITHOUT significantly changing our (Americans) lifestyle. Our infrastructure is built on oil and we CANNOT turn that around overnight. However,better gas milage vehicles, nuclear power for electricity, and less unnecessary trips are just a few things we can do now. Let get the basics in economic efficiency down first; and then allow the great minds and inventors of our nation to find ways to lesson our dependence on fossil fuels.

Uh, guys?  Seems a lot of you aren't getting the point of the story.

Just because some of you need or will refuse to give up owning a third car doesn't automatically equate to everyone feeling that way.  Even if you don't drive that third vehicle very much, you still have increased expense in the form of insurance and maintenance, not to mention if you're still paying on it.  Those people that are starting to run into tight financial situations between the rising gas and food prices and the housing downturn are going to need to give up those extra vehicles.  That means more used vehicles going onto the market and less demand.

And no, you can't drive more than one vehicle at a time and you may not change your gas consumption.  But that's not the point - see above - you're still paying for that extra vehicle.  Maybe some of you can afford that, or have a need for that third vehicle.  Not everyone does, so as I said above they will either not be buying that extra vehicle in the first place (reduce sales, and hence the increased whammy on the car companies), or will be putting their existing excess vehicle(s) on the market - again a whammy on the car companies by increasing the availability of good used vehicles on the market to compete with new vehicles.

So no, the author is not saying that everyone will get rid of their excess cars, but some people will.  Another thing not pointed out in the article is that people will probably begin driving vehicles longer before buying a new one if it's a fairly gas-efficient model, squeezing that extra year or two out of it before trading it in.  Again, that cuts into the car makers bottom line.

The truth or accuracy of an article does not begin and end with what YOU do or whether what is said applies to YOU, so stop for thirty seconds before posting that this is a dumb article because you don't believe it because you own three or four cars and don't intend to get rid of them.  You are not the end-all and be-all of the car market, so whether or not you, personally, can afford three, or four, or ten cars is irrelevent.  What is relevent is whether the millions of your fellow countrymen can afford those additional superfluous vehicles.

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