In Depth Analysis: CalculatedRisk Newsletter on Real Estate (Ad Free) Read it here.

Tuesday, August 09, 2022

Vehicle Sales: Fleet Turnover Ratio and the Inflation Impact

by Calculated Risk on 8/09/2022 03:14:00 PM

Back in early 2009, I wrote a couple of posts arguing there would be an increase in auto sales - Vehicle Sales (Jan 2009) and Looking for the Sun (Feb 2009).   This was an out-of-the-consensus call and helped me call the bottom for the US economy in mid-2009.

I wrote an update in 2014, and argued vehicle sales would "mostly move sideways" for the next few years.

Here is another update to the U.S. fleet turnover graph.

This graph shows the total number of registered vehicles in the U.S. divided by the sales rate through July 2022 - and gives a turnover ratio for the U.S. fleet (this doesn't tell you the age or the composition of the fleet).  Note: the number of registered vehicles is estimated for 2021 and 2022.

The wild swings in 2009 were due to the "cash for clunkers" program. 

And in April 2020, sales collapsed due to the onset of the pandemic.

Fleet TurnoverClick on graph for larger image in graph gallery.

The estimated ratio for July is close to 21 years - well above the normal level.

Note: in 2009, I argued the turnover ratio would "probably decline to 15 or so eventually" and that happened - and will likely happen again.

The second graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is current estimated sales rate.

Vehicle Sales The current sales rate is still low mostly due to pandemic related supply constraints.

Light vehicle sales were at a 13.35 million seasonally adjusted annual rate (SAAR) in July.

I expect vehicle sales to increase over the next couple of years.

When the Fed fights inflation, housing is the primary transmission mechanism for Fed policy, since housing is interest rate sensitive.  

Usually, vehicle sales are impacted too by Fed policy, but probably not this time since sales are so low due to the supply constraints.