Auto sales are booming in America. But … for how long?
The New York Times reported earlier this week that automakers as a whole scored a 17% increase in sales for the month of August, moving 1.5 million pieces of metal for the month — and suggesting sales for the year could hit a post-financial crisis high of 16.09 million.
In its most recent quarter, Ford Motor Company (NYSE:F) beat nearly all comers, notching a 15% gain in sales versus the year-ago quarter, and grew its profits 19%.
Ford’s F-150 — the best-selling truck in America, Source: Ford.
At General Motors Company (NYSE:GM), profits were down year over year — but sales were still up by 4%. Balancing out General Motors Company (NYSE:GM)’s poor results, Chrysler-owner Fiat S.p.A. likewise grew sales 4%, but grew its profits more than fourfold!
However,one troubling trend suggests that the good times may not keep rolling much longer.
According to the U.S. Federal Highway Administration , the average amount Americans drove in a month in the U.S. hit its peak in July 2004. Total vehicle use — a figure inflated by rising population numbers — continued chugging along until it, too, topped out in August 2007. It’s been all downhill from there.
When the odometer stops turning
Total vehicle miles traveled in the U.S. dropped in the first half of 2013, relative to 2012 data, and the average American today drives just 820 miles per month — 9% fewer than we did nine years ago. The number of young people applying for driving licenses, too, is down. Kids in their teens and 20s — and even their 30s — are all down “significantly” since before the most recent recession, according to the Associated Press.
What’s to blame for all this? Some people blame the Great Recession, of course, and the toll it took on American wallets. Others point to high gas prices as making car ownership, and driving in general, less attractive than it once was. And then there are the other culprits — taxes, insurance costs, and the high sticker prices.
To those factors, add traffic jams, government initiatives to promote walking and bicycling to work, and the simple fact that, in this day and age, we just don’t need cars as much as we used to, what with Amazon.com, Inc. (NASDAQ:AMZN) offering to deliver almmost anything to your doorstep — and promising to expand its grocery delivery service soon, as well.
Some commentators — University of Michigan transportation researcher Michael Sivak among them — blame social networking for the fact that people are driving less frequently than they used to. Last quarter, Facebook Inc (NASDAQ:FB)‘s revenue was up 53% — easily eclipsing the sales gains at any of Detroit’s Big 3. Facebook Inc (NASDAQ:FB)’s “daily active users” tally increased 27% year over year, to 699 million. That’s an awful lot of folks who may be logging on, instead of buckling up, when they want to “hang out” with their friends.
So why is anyone buying cars at all?
Despite all this, Ford Motor Company (NYSE:F) still grew its sales 15% last quarter. How? Well, in large part, this is a factor of “pent-up demand.” Spooked by the Financial Crisis, a lot of people took a “brake” from buying cars over the past few years. The average car on America’s highways today is 11.4 years old, and in serious need of replacement.
For a time, this mini-trend of replacing worn-out vehicles will continue to bolster earnings at Ford Motor Company (NYSE:F), and at its competitors as well. It may even turn out that analysts are right about Ford being able to grow its earnings at close to 14% annually for the next several years. Maybe.