Autos and light trucks sold at a 15.5 million annual rate in November, up 8.7% from October and up 14.7% from a year ago. This is the fastest pace since December 2007. It looks like the recovery from Sandy is going to be quick. However, the gain in sales in November was probably boosted by some replacements for vehicles that were destroyed by the storm, so expect some pull back next month.
Looking beyond the next few months, our calculations suggest consumers can sustain a pace of at least 15.5 million new vehicles per year. The replacement rate measures sales relative to the existing number of registered cars and light trucks. Normally, before the panic/recession of 2008-09, the replacement rate hovered between 12 and 15 years. Another way to think of it is that annual sales would be somewhere between 1/15 and 1/12 of the number of vehicles already registered. With about 240 million cars and light trucks now registered, at a selling pace of 15.5 million, the replacement rate works out to be, coincidentally, 15.5 years. Getting back down to a replacement rate of 15 years would require a selling pace 16 million per year; getting to a replacement rate of 12 would require a selling pace of 20 million per year.
Meanwhile, the driving-age population (age 16+) is set to grow at about a 1% pace in the next few years. This growth rate applied to the 240 million cars and light trucks already on the road suggests demand for an additional 2.4 million vehicles. In addition, scrappage rates should generate demand for more than 13 million vehicles per year. Putting this together suggests a threshold of 15.4 million per year.
The bottom line is that any near-term pullback in auto sales should be followed by further gains. This is not an economy that is rolling over. Instead, it continues to plow forward.
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