A New Boom in the Auto Industry?

Motley Fool advisor Joe Magyer recently showed an interesting chart depicting current U.S. auto sales next to "normalized" sales. By Joe's estimates, current auto sales are around 4 million vehicles a year shy of where we should be. That bodes well for the industry going forward, as pent-up demand will eventually break out into higher sales. He explained:

The average age of cars on U.S. roads is now a record 10.6 years ... as a tough economy has forced drivers to grind out just a few more miles on their clunkers. As those vehicles get more and more expensive to fix and used car prices hover near record highs, new vehicle demand will get pushed upward whether the economy comes along for the ride or not.

While the industry is beset by all kinds of problems, it's that pent-up demand that will eventually propel Ford (NYSE: F  ) , GM (NYSE: GM  ) , Honda (NYSE: HMC  ) , and Toyota (NYSE: TM  ) higher. The more frugal consumers are today, the greater the likelihood they'll open their wallets tomorrow.

I recently sat down with Mesirow Financial chief economist Diane Swonk for a wide-ranging talk about the economy. When I asked her what was going right in the economy, she echoed Joe's views and elaborated on the auto industry's possible revival. Have a look :

What do you think? Share your thoughts below.

Fool contributor Morgan Housel doesn't own shares of any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of General Motors and Ford Motor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On January 13, 2012, at 2:28 PM, spawn44 wrote:

    Diane, I have some other information that may be news to you. THE EAGLE HAS LANDED, THE EAGLE HAS LANDED.

  • Report this Comment On January 14, 2012, at 11:40 PM, devoish wrote:

    Boom? I don't see it. 2010 saw a 10% increase in new car sales over 2009. I would guess that almost all that's coming. http://www.bts.gov/publications/national_transportation_stat...

    People are still unemployed, 15 million more are still on food stamps than just five years ago. None of that has changed and single income family's can dump one car. Make an estimate of people who lost one income, or part of one income, and imagine how they will react to paying off a car loan. Probably not by getting another. US driving miles are down, home equity turning into new cars is gone.

    Joe Magyers trend line for auto sales is nice, and extending it out and up is one possibility but the trend line for the last ten years is down.

    New car sales are about where they can be, and if they go boom soon, it probably will not be a good boom.

    For me it really comes down to people finding the money to buy cars.

    Best wishes,

    Steven

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