Have a look at retail sales. They have been fairly soft, disappointing, or whatever measured phrases like “OK, not terrible, but not great” that analysts and commentators favor to indicate mediocrity. Nearly all consumer spending reports are showing soft to flat data.
There is one notable exception, however, and that’s automobiles. Cars and light trucks purchased for homes and businesses are selling at a record pace — a run rate of more than 18 million vehicles this calendar year.
Why is that?
Aside from the generally improving U.S. economy, there are three reasons we can point to: falling gas prices, the aging of America’s auto fleet and credit availability.
Falling gas prices affects both the kind of autos purchased as well as total sales. When gas prices drop substantially, sales of hybrids and smaller, more fuel-efficient vehicles tend to fall, while larger, less-efficient sport utility vehicles, trucks and large sedans see more sales. A Bloomberg analysis from last year shows it takes decades to make up the premium cost of a hybrid over a comparable conventional fuel-efficient compact. With the exception of Teslas, electric car sales fall, too (though some claim that plug-in cars have not been especially impacted by falling gas prices).
Data from Autodata Corp. show that through August of this year, U.S. auto dealers sold nearly 600,000 more SUVs and pickups than in the first eight months of 2014, and almost 168,000 fewer cars. Consumers with more cash in their wallets are buying more vehicles; of those increased purchases, we see larger vehicles — which thrills manufacturers, as these have much higher profit margins as well.
Perhaps part of the reason for this increase is the age of the 254.4 million vehicles on America’s roads. In 2007, the overall median age of an automobile in the U.S. was 9.4 years, a significant increase over 1990 (6.5 years) and 1969 (5.1 years). While automobiles today are of better quality and, therefore, last longer, that does not completely explain the recent big jump in the age of the fleet.
Continues Here: Retail Looks Meh, Unless You’re Selling Cars
The only thing that matters is financing availability. Autos are a protected species, as are colleges, defense companies, and homes sales (and banks who finance them).
Cars are fun. People are sick of buying little chotchkes at Wal Mart. The pleasure is transitory. Americans accept that so why not buy something fun to share with people like dinner and drinks or a video game or a whoring and gambling junket in Vegas.
People want fun. China needs to move from making stupid stuff cheap to becoming fun. Hard to do when you’re a dictatorship jamming Macau.
We keep our cars for a decade or more. In the high salt, heavy snow, and crappy road area I live in, 12 years is a very long lifespan for a car. By the time you hit a decade, entire systems are being replaced (AC, exhaust, transmission, suspension, etc.). A single visit to the mechanic can easily set you back the equivalent of 2-4 months of car payments. That is acceptable say once a year but once you see them potentially occurring a couple of times of year, you have to really think about it.
We got to that point this year for both our cars and bought new ones. However, other than buying new winter tires, we don’t expect to pay any significant mechanic bills for at least 3 years looking forward. So our new car purchases are a positive jolt to the economic system, but at the same time there will be a lot of activity for car mechanics and parts manufacturers that won’t be happening over the next 3-5 years. That will show up as a reduction in the “other” consumer spending.
Be careful in evaluating retail sales data and do not be fooled by weak nominal numbers.
The year over year change in the deflator for retail sales is minus 2.9%. Moreover, it is not just gasoline as the deflator for GAFO sales — department store type products — is also minus 2.9%.
That means the current report of almost 2% nominal retail sales is really almost 5% in real terms,
the strongest it has been this cycle.since 2010 early in the cycle.
. . . And if you spend tens of thousands of dollars (or hundreds per month) on a new car, that doesn’t leave much in the old account to buy Mama a new pair of shoes–or anything else–for Christmas. Especially so when most people’s income is stagnant at best.
Then comes the classic November/December acceleration in retail sales. Sorry, but you really need to rethink that point. Especially since August ex-gas was stronger than usual.
Anecdotally, those vehicles seem to be behemoth trucks and SUV’s. I just learned yesterday of a former co-worker who traded in his Fiat AND a compact jeep on a new Ford Expedition costing $72,000. He has payments over $800 a month for eight years. He better pray that gas doesn’t go back to $4.50
it will no doubt about it
LOL – I thought you were full of it, but I was actually able to get MSRP past 72K on one of those hunks of crap!
What is this? A redneck status symbol?
I can get a friggin nice Lotus for that price! Somewhat exotic, yet a reliable Toyota power-train and amazing handling. I think decent gas mileage too! The only real big thing I think they do is run more boost on the supercharger.
72K for a modified pickup truck!? W… T… F… ???
maybe because you can drive a ca to work? some thing thats very important to almost every one? even during the down (which was really bad) cars still sold
The one area where I think ZIRP worked as intended. I remember the ads “72 months zero interest”.
Financing for cars is available to just about anyone. It was this year that total Auto lending exceeded 1 trillion. Cars are a feel good, image boosting, purchase. No house get a car. Always been a big part of the american dream.
+1 for what it’s worth. At least with a car you get 100% new. A house is more complicated. You can live in a car! Especially if it is a 72K Expedition! I just can’t get over this. I guess I’m old.