The American Auto Industry

We have carried forward the notion that transportation aligns with the American dream of having a single-family home with a white picket fence. We have a two or three-car garage, so why not fill them. 

The majority of Americans still strive to have independence by getting their driver\’s licenses and purchasing vehicles. However, the general approach of younger Americans has shifted away from expediting the process of freedom in this manner.

So we\’re going to look deeper at this change based on three components: the consumer, the industry, and the economy and how it affects the economy.

Consumer

According to The Federal Highway Administration, the percentage of Americans getting driver\’s licenses by age 16 is a bit surprising. They outlined that from 1983 to 2018, the number of 16-year-olds who held a driver\’s license dropped by nearly 50%, while those who were 18 years old dropped 20%, respectively.

A Bloomberg article continues to explain this data further, saying that \”More generally, young Americans have been going through the rites of adulthood — finishing school, getting a job, moving out on one\’s own, getting married, having kids — at later and later ages.\”

Beyond this, looking at a means of transportation, the availability of options has become more prevalent as we have seen disruptions in the cab industry with companies like Uber and Lyft, various Rideshare platforms, and alternatives to traditional rental agencies such as Turo. Beyond this, easily accessible options like scooters and bicycles have further enhanced the transportation options for someone looking for a vehicle alternative. 

Do we really need vehicles?

It is no secret that owning a vehicle can be a massive undertaking and hit to your budget, but most deem it a necessity and think nothing more of it. 

In this series, I want to look at alternative options to simply buying a car and driving it into the ground or buying a car only to upgrade it and take the hit of depreciation that sends you upside-down, as the example with John [insert link to W18E1 blog]. In an article by J.D Power, he says, \”Average transaction prices are expected to reach $37,286, just below the all-time record transaction price set in December 2020.\” This fueled by \”Tight new-vehicle inventories have led to rising values for used vehicles, which translates into higher trade-in values for consumers. Those higher trade-in values, along with low interest rates, mean that the average monthly finance payment in March 2021 is expected to increase by only $5 to $595, J.D. Power says.\”

Let me reiterate that last point. The average car payment increased to $595 this year. So when you\’re looking at a $600 car payment, and you\’re looking at the cost of new vehicles rising your cost of transportation costs due to fuel and insurance, it\’s no wonder that people are getting a little bit of sticker shock from this.

Looking at this estimated figure against a chart by Credit Karma created from Experian data is eye-opening. The average new car payment growing by over 20% in a span of five years is a lot.

Industry

According to The National Automotive Dealers Association (NADA), the market share by segment continues to be led by crossover vehicles at 45.3% continuing to batter the sedan segment. This means that vehicles, although seemingly improving in efficiency, at the same time are getting larger and requiring more fuel, maintenance, and other costs above and beyond the loan payment. This may also correlate to an even higher cost of ownership.

Even with this shift in segments, Statista shows a steady increase in cars on the road in the United States for the last thirty years, confirming that vehicles continue to be a popular purchase amongst Americans. 

Why are there so many cars on the road then?

So if people are waiting longer to get their licenses in general, why is there a constant increase topping 1.2b vehicles on the road today? Although the percentage of the group with a driver\’s license is lower, you can assume that this is due to population growth.

Economy

The American auto industry is a massive contributor to the National Gross Domestic Product or GDP, contributing about 3%, depending on the source. The National Automotive Dealers Association (NADA) published a one-page report last year outlining dealers\’ impact on the economy, stating that dealers contributed to $980.2B in sales and employed over 2.2M people.

Goodcarbadcar.net outlined figures provided by the U.S. Bureau of Economic Analysis showing the last 15 years of data for new car sales. The data shows that 2020 was the worst car sales year since the drop experienced in 2008. However, it looks as though the end-of-year sales were leading into 2021, strongly reversing that trend.

Whether you look at transportation from a consumer standpoint, the industry, or its impact on the economy, you need to examine your relationship with it and whether it has been healthy. Have you continually bought vehicles that you couldn\’t afford, adding on negative equity for prior vehicles while continuing to push that monthly payment out and up, or have you been conservative in your approach to taking on debt?

Call To Action
Take a moment now to think about your journey in owning a vehicle. How have you approached this type of purchase historically?

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