Americans Aren't Giving Up Their Cars
Auto loan delinquencies surged in 2018, rising to 2.36 percent, which was the highest rate since the third quarter of 2010.
More Americans than ever are at least three months behind on their auto loans, a sign that the U.S. economy may have little growth left in the tank.
The number of loans at least 90 days late exceeded 7 million at the end of last year, the highest total in the two decades the Federal Reserve Bank of New York has kept track. Expressed as a percentage of total debt, the delinquency rate is the highest since 2012, as overall borrowing has also increased.
Source: Federal Reserve Bank of New York, Household Debt and Credit Report.
This isn't to say that automobiles are going away as an industry. In spite of repeated claims that people aren't buying cars anymore — and that millennials would rather walk everywhere — overall spending on auto sales reached new highs in 2017 and 2018.
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On the other hand, per capita spending on auto has still not recovered from the high of the year 2000. This, however, does not prove that people are getting rid of their cars. It may only mean that they are economizing on cars.
For example, the American Community Survey's data through 2017 suggests very little change in recent years, as far as vehicles per households. According to the survey, the number of households with one vehicle has been virtually unchanged since 1990 around 33 percent. Since 2000, the number of households with two vehicles has only slightly ticked downward from 38 percent in 2000 to 37 percent in 2017.
Source: Transportation Energy Data Book, Table 8.4, Oak Ridge National Laboratory. 2010-2016 data – U.S. Bureau of the Census, American Community Survey, Table CP04, 2018.
Meanwhile, since 2000, the number of households with three or more cars has increased from 18 percent to 21 percent. (Household size has decreased over the same period.)
In other words, we don't see anything here to suggests that American households are scaling back the number of vehicles per household, even if they do cut back on how much they are spending.
After all, not everyone concludes he absolutely needs an $80,000 pickup truck.
It remains unclear if the Great Recession or the allegedly different attitudes of the Millennials has fundamentally changed auto availability per household.
The short term effects of the Recession are clear. Looking at the average number of vehicles per person or per household, we do indeed see a drop off in the number of light vehicles in the period following the recession. Looking at a broader timeline for the past twenty-five years, however, the trend remains remarkably flat.
As far as Millennial demand goes, CNBC reported in 2017 that "Consumers, ages 21 through 34, are taking out new auto loans at a 21 percent higher rate than Gen X borrowers did when they were that age." And in 2016, the Associated Press pointed out "millennials — especially the oldest ones — are these days buying cars in big numbers. They just had a late start." The article also noted that in California, the country’s biggest car market, millennials outpaced boomers for the first time as car buyers. Millennials’ share of the new-car market jumped to 28% in 2015.
Moreover, as USAToday reported last week, low interests rates have continued to feed demand for ever-pricier cars:
A decade ago, the best-selling segment of vehicles was affordable small cars, like the Ford Focus sedan, she said. Today, it’s entry-level crossovers like the Toyota RAV4 and Ford Escape, which carry starting prices of several thousand more dollars.
“Fundamentally consumers have changed what they’re buying,” Zabritski said. “That’s part of where we’re seeing these rising prices.”
They’ve changed so much that the Focus, in fact, is gone. Ford is discontinuing the car, along with the Fusion and Fiesta sedans. And General Motors is killing the Chevrolet Cruze, a Focus competitor, along with several other car models.
Given all of this, these may be the takeaways about auto ownership right now:
1. Americans appear to still like their cars. The vehicles-per-household data from the Census Bureau shows little change at all since 2000, and overall averages suggest a flat trend over the past twenty-five years.
2. The American standard of living — in terms of household access to vehicles — does not appear to have changed significantly since the year 2000. During the 1980s, and to a lesser extent the 1990s, we did continue to see declines in the households with no vehicles, and increases in the number of households with three or more vehicles. After the 1990s, we see little change.
3. Millennials aren't necessarily abandoning the idea of auto ownership. There have been many claims that this is the case. But many have also claimed that Millennials mostly want to move to central urban areas. In both cases, the data has been inconclusive. It appears many Millennials do indeed wish to move out of the city — and many will need to own cars to carry on life in a suburban or exurban environment.
4. Nevertheless, when the economy softens, it's difficult to see how the current preferences for larger, more expensive cars can be sustained. We're likely to see a period of auto repossessions and a return in demand for lower-priced economy cars. Those who can pay cash for cars will benefit, while those who overextended themselves to buy pricier cars with big loans will suffer the most.