There Is A Legitimate Reason To Explain Poor New Car Sales

Sales of new vehicles in the U.S. throughout July were poor, and investors are scrambling to find an explanation, especially when factoring in a strong growth of licensed drivers, relatively affordable financing and cheap gas.

But the answer is quite simple, Bloomberg reported. Going back 20 years, around 13 million vehicles have been removed annually from the U.S. fleet, which is notably below the number of new vehicles sold over the past five years. Auto owners have been eager to upgrade their aging vehicles — which typically keeps new car sales hot — but at some point, this trend had to come to an end.

And that point is now as auto owners are opting to invest and repair their cars instead of buying a new one. The average car or truck on the road today was made in 2005, and for most people, a car made in 2005 can still fulfill its objective of moving a person from point A to point B.

In other words, the U.S. auto industry did such a great job in selling long-lasting cars — to the point where it no longer needs to sell new cars.

"Car executives, of course, know this better than anyone, and no one in the C-suites of MoTown was probably surprised by the latest sales numbers," Bloomberg emphasized.

Perhaps the only solution for automakers like Ford Motor Company F and General Motors Company GM is to lower production, raise incentives, and unfortunately hand out pink slips to many workers.

"They're going to find a way to deal with it until they get kind of right-sized on production," Bloomberg Intelligence analyst Kevin Tynan was quoted as saying. "Basically, it's a question of how soft do you want to land?"

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