Why No One Will Buy A New Car This Year

US new vehicles sales reached almost 17 million in 2005. The number dropped to 10.4 million units in 2009, the lowest level in 27 years.

Most industry analysts expect the American car market to rebound to 12 million total sales in 2010. JD Power presents a more conservative forecast of 11.5 million.

The Toyota (TM) recall of cars for faulty accelerators and a new recall of Prius hybrids for brake problems have threatened the sales prospects for companies well beyond the No.1 vehicle manufacturer in the world. The CFO of Honda told The Wall Street Journal that “I think we should see this Toyota problem from a broader viewpoint. If customers start to harbour doubts, that would be a problem for the whole industry.” It already is.

Car sales in the US could fall well below 10 million units this year primarily due to two factors. The first is that Americans may decide that new car safety has been compromised across a large number of manufacturers. Most of the announced recalls involve accelerators and brakes which share relatively common mechanics across most makes and models of cars. This conclusion may not be  understood by consumers without engineering backgrounds. Buyers have probably begun to decide that they are faced with a generation of problems, lemons, which extend beyond one company and one region.

Americans have also recognized that they can own their cars for longer. The RL Polk car research company reported that “the average length of ownership of a new car or truck in 2008 was more than 4.5 years (56.3 months), compared with 49 months just six years ago.” Cars are better made than they were a generation ago. Warranties are, usually, better. People will keep their cars for a variety of reasons because they can. Cars work well longer and can be kept running, usually, with modest repairs when necessary. The cost of repairs is often less expensive than buying a new car.

The concerns about car safety and the effort and cost of taking a car in for a recall are enough to keep edgy shoppers out of showrooms until it is clear that the quality issues and recall activity among any and all manufacturers are over.

The car industry is in no shape to have the positive effects of an economic rebound offse,because of by the public’s concern about safety or the disruption of owning a car which needs substantial repair. But, those issues are exactly what auto firms are faced with, both inside and outside the US. The hard-earned quality reputation that Toyota enjoyed over a period of thirty years which set a benchmark for the industry was chased by American car companies from the 1980s until recently. Industry wide data show that US vehicle firms have finally reached a level of consumer satisfaction comparable to Toyota and other Japanese car companies. The irony is that as all the companies in the race draw even, the entire industry could be ruined by product concerns.

Car companies can set up programs like those from Hyundai and GM which allow customers to return cars if they are unhappy with the products. Even that may not be enough to offset the public’s anxieties.

The new, most likely forecast for the American car industry is that it will go through another year like 2009. That will require companies to use their cash to offset losses. Firms including GM which are counting on a cost costs and an anticipated rise in sales to get back to profitability may have to face the deferral of those plans for another year or two.

The American car industry cannot avoid another horrible year in 2010. But, the consumer is in a place to wait the recall problem out just as they waited out the recession.

Douglas A. McIntyre