Peak Auto Claims Another Victim
(Bloomberg Opinion) -- Lots of explanations have been trotted out for the job cuts and plant shutdowns announced by General Motors Co. on Monday. Some (including me) cited the shift in consumer demand from sedans to sport utility vehicles. Others pointed to the cost of President Donald Trump’s trade wars. Yet others saw it as a sign that the economy is slowing. And let’s not forget GM Chairman and Chief Executive Officer Mary Barra, who said, “The actions we are taking today continue our transformation to be highly agile, resilient and profitable, while giving us the flexibility to invest in the future.”
Here’s another explanation that really hasn’t gotten enough attention: GM is cutting back in part because Americans don’t need as many new motor vehicles as they used to. I owe this idea to veteran Washington economist Hal Singer, who wondered on Twitter why vehicle sales were down from a year ago even as economic growth had accelerated. But I actually wrote a whole column about the phenomenon last year that just needed a little updating to be applied this week’s news.
Light vehicle sales in the U.S. have been more or less flat since 2015, but they’re not far off the all-time highs set in 1999 and 2000. Adjust them for the size of the driving-age population, though, and what you see is a long downward trend.
Part of what is going on is just that vehicles are staying on the road longer. The average age of cars and light trucks in the U.S. was 11.6 years in 2016, up from around five years in the late 1960s. By making better products, automakers have cut into their sales.
Over the past decade-plus, though, Americans have also been driving less. The drop in per-capita vehicle miles traveled began during a period of rising and volatile gasoline prices from 2005 through 2008, then accelerated during the worst economic downturn in 75 years. As vehicle miles traveled began to rise again after the recession, it still seemed conceivable that a few more years of economic growth and reasonably priced gas would get the country driving like normal again. But no, per-capita vehicle miles traveled seems to have peaked last year, at well below the highs of the mid-2000s.
What is that something? A turn to public transportation doesn’t seem to be it, given that ridership has been falling since 2015. The continuing rise of working from home, which more Americans did than commute via transit in 2017, surely is part of the equation. Then there are bikes, electric scooters, the boomlet in urban apartment construction, non-driving teenagers, video games, streaming services, online retailers, and all sorts of other interesting and in some cases intertwined developments that could be depressing the demand for automotive travel.
In any case, it all adds up to a picture of very slow demand growth or even retrenchment in the U.S. car and light truck market for the foreseeable future. Meanwhile, keeping up with expected market shifts to electric vehicles and, eventually, autonomous ones will require big investments by automakers. If you were running GM, you’d be desperate to make your company more agile and resilient, too.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Justin Fox is a Bloomberg Opinion columnist covering business. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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