The growth rate of vehicles in operation (VIO) declined precipitously during the recession. In fact, in 2009, vehicle scrappage exceeded new vehicle sales and, thus, there was a decline in the vehicle parc – a post World War II first. With the improvement in the economy and new vehicle sales, the VIO count has once again begun to rise, but at an annualized pace (below two million) that is far short of the six-plus million annual growth rate posted in 2004, 2005, and 2006.
To assess what part of the slowing in VIO growth is a result of current economic conditions as opposed to longer term changes in demographics and lifestyles, it is useful to segment the growth into root causes. In the simplest of terms, increases in VIO can be the result of either:
- growth in the number of households,
- growth in the number of households owning a vehicle, or
- growth in the number of vehicles per household.
Given time series for the number of U.S. households, the percentage of households owing at least one vehicle, and the average number of vehicles per household, we can mathematically segment VIO growth into one of the three root causes. (Technically, there is also the synergistic effect between individual factors, but that can be simply prorated back to one of the three.)
This is what the analysis looks like for the past six decades:
Naturally, the share accounted for by an increase in the percentage of households owning a vehicle became miniscule after vehicle ownership became almost ubiquitous. We also see a general decline in the share accounted for by an increase in the number of vehicles per household. This was also a reflection of saturation as the number of vehicles per household rapidly approached the number of persons per household - and often exceeded the number of driver licenses at that residence.
In the last decade, there was a slight decline in the share accounted for by simple growth in the number of households. This was a result of slowing household formation rates as economic conditions produced more “doubling up”. (When kids move back in with parents, or unrelated persons double up, they bring their vehicles with them.)
It is logically to assume that in coming decades VIO growth will be driven primarily by household formation rates alone. This will make future increases in the vehicle population both more predictable and less rapid. Slower VIO growth, coupled with the long-term decline in the scrappage rate, suggests that the underlying rate of demand for new vehicles is far below the 17 million annual sales rate that was achieved during the seven year period between 1999 and 2005.