Auto sales “collapsed” in March, but a close look shows that this is no reason for pessimism about the economy — or even about the auto industry.

It’s true that subprime auto loans are becoming a concern to growing numbers of investors, and that self-driving cars and ride-sharing growth exist as structural threats to the industry, and that this economic cycle could be due for a dip. And yet economic activity correlated to auto sales shows no reason for concern, and a return to some pre-recession behavioral patterns suggests a country with no intention of giving up its historic love affair with cars.

At the individual level, people buy cars for all sorts of reasons, but in the aggregate they buy them for two reasons: because their old one wore out, or because they got a new job. For people buying a new car who already have a car, that trade-in cycle kicks off a game of musical chairs. (Musical drivers’ seats?) Maybe the person buying a new 2018 car is replacing a car with an expiring three-year lease. And then that three-year-old car is bought by a worker whose 12-year-old car with 150,000 miles on it is having more and more maintenance problems. And then that 12-year-old car is bought by a young worker with a low-paying job hoping to nurse a few more miles out of it.

So are all these drivers driving more or less than they used to? That should affect current and future auto sales. Aggregate miles driven continue to grow slowly, meaning cars will continue to wear out and need replacement, supporting vehicle sales…

 

To read the full article please visit https://www.bloomberg.com/view/articles/2017-04-05/car-sales-dipped-but-expect-big-demand-ahead

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