U.S. MOTOR VEHICLE SALES

Historical Sales Trends for New Motor Vehicles

The number of new motor vehicles sold (which includes lease vehicles) in the U.S. from 1970 to 1995 is presented in Figure 1 and Table 1. A quick glance at these data reveals one of the more prominent characteristics of motor vehicle sales, which is that they are extremely cyclical. Since 1970, new motor vehicle sales have ranged from highs of 16.3 million units in 1986 and 15.8 million units in 1988, to lows of 10.1 million units in 1970 and 10.5 million units in 1982. The cyclical nature of new motor vehicles is further illustrated in Figure 2, which compares the annual percentage change in U.S. motor vehicle sales with the annual percentage change in overall economic activity as measured by real gross domestic product. This comparison shows that the number of new vehicles sold is much more cyclical than is the overall economy.
 
 

Figure 1 

Figure 2 

These major fluctuations in new motor vehicle sales since 1970 occurred in relatively short periods of time. During 1974 and 1975, when the U.S. economy was in a recession, U.S. new motor vehicle sales plummeted by 3.5 million units, or 24.2%, compared with the 1973 level. As economic activity recovered, motor vehicle sales shot back up by 4.0 million units, or 36.5%, by the end of 1977.

A similar cyclical variation in U.S. new motor vehicle sales occurred during the 1980s. The prolonged economic weakness from 1979 to 1983, reduced sales from 15.4 million units in 1978 to 10.5 million units in 1982, a decline of 31.6%. Then as economic activity improved, motor vehicle sales increased during four consecutive years to a high of 16.3 million units in 1986. Motor vehicle sales then remained at fairly strong levels during the remainder of the 1980s.

The relatively strong level of sales maintained from 1984 to 1989, abruptly ended as the economy slid into another recession in 1990. Motor vehicle sales declined from 14.8 million units in 1989 to 12.5 million units in 1991, a fall of 15.5%. During the spring of 1991, the economy began gradually to improve and motor vehicle sales did likewise. By 1993, motor vehicle sales were back up to 14.2 million units, an increase of 13.2% from the depressed level in 1991.

Motor vehicle sales continued to improve in 1994. During 1994, sales topped the 1993 sales level by 8.5%. Sales would have most likely been even higher had it not been for availability problems resulting from production capacity constraints for many of the popular light truck models. For 1994, motor vehicle sales totaled 15.4 million units. This was the highest sales level since 1988.

In 1995, vehicle sales fell slightly from the 1994 sales pace but still totaled a respectable 15.2 million units. In 1996, it appears that sales will have rebounded to about 15.5 million units, based on actual data through October. The 1996 sales level, coupled with the sales in 1994 and 1995, marks the third strongest three-year period in motor vehicle sales during the last 26 years. The two strongest three-year periods occurred in the last half of the 1980s.

Factors Contributing to the Significant Cyclical Fluctuations in Motor Vehicle Sales

The cyclical nature of new vehicle sales is due to a combination of factors including 1) the relatively high price of new vehicles, 2) the level of consumer disposable income, and 3) job security. Both the price of a new vehicle and the cost to finance it are considered when a purchase is made. Next to a house, motor vehicles are probably the most expensive items that a person will ever purchase. Therefore, people want to have a certain level of financial security before they are willing to make the major financial commitment it takes to purchase a new vehicle. The level of people's financial security is dependent on any changes that are occurring in the individuals' income and on their long-term job security. If their income is rising and they feel secure about being able to hold on to their current job, their financial security is enhanced and they tend to be more willing to make the financial commitment to purchase a new vehicle. If their income is not increasing and layoffs are occurring in their line of work, people are less inclined to purchase a new vehicle. They may simply postpone the purchase until their financial situation improves or purchase a less expensive used vehicle. Therefore, as the normal cyclical fluctuations in economic activity affect income and employment, motor vehicle sales also tend to experience significant cyclical variations.

Sales Mix Between Autos and Trucks

Over the past 25 years there has been a dramatic change in the mix of new motor vehicle sales between autos and trucks, as shown in Figure 3. In 1970, autos accounted for 82.8% of total U.S. motor vehicle sales, and trucks accounted for 17.2% of total sales. By 1985, the auto share of U.S. motor vehicle sales fell to 69.8%, while the truck share increased to 30.2%. This shift away from autos to trucks continued in the last half of the 1980s and into the 1990s. By 1995, the truck share had risen to 42.8% of total sales, while the auto share slide further to 57.2%.

Figure 3 

This dramatic shift away from autos to trucks is further illustrated by comparing actual sales levels in 1970 and 1995. In 1995, motor vehicle sales totaled 15.2 million units, which topped the 1970 sales level of 10.1 million units by 49.3%. Auto sales, however, totaled 8.7 million units in 1995, which was up only 3.2% from the 8.4 million units sold in 1970. On the other hand, truck sales totaled 6.5 million units in 1995, which was up 271.3% from the 1.7 million trucks sold in 1970.

Domestic Versus Imports and Transplants

There also has been an equally dramatic shift in the source of the motor vehicles sold in the U.S., particularly for autos. Motor vehicles sold in the U.S. come primarily from three sources:

Domestic Nameplates. Domestic nameplates include the vehicles produced by the traditional U.S. auto manufacturers, which currently consist of the "big three"-General Motors, Ford, and Chrysler.

Domestic Transplants. These are vehicles produced or assembled in the U.S. by foreign-based auto companies. This category includes automobiles produced by such companies as Honda, Toyota, Volkswagen, and Mazda, which have plants located in the U.S.

Imports. These vehicles are manufactured by foreign companies in locations outside the U.S. and then shipped to the U.S. to be sold, including Honda, Toyota, Volkswagen, and BMW.

Autos. In 1970, autos with domestic nameplates, which then included American Motors along with the "big three", dominated U.S. auto sales by accounting for 84.7% of total U.S. auto sales, as shown in Table 2. Imported autos accounted for the remaining 15.3% of the autos sold. In 1970 no foreign auto companies were producing vehicles in the U.S. After the 1973 and 1979 oil crises, the relatively smaller and more fuel efficient autos produced by foreign companies, particularly in Japan, captured a larger share of the U.S. new car market at the expense of the domestic nameplates. In 1980, the import share had risen to 27% and the domestic nameplate share had declined to 73%. There were still no domestic transplants in the U.S. in 1980.
 

During the 1980s and into the 1990s, the mix of the sources of autos sold in the U.S. experienced some further dramatic changes. The most significant change was that domestic transplants began to appear in the U.S. In 1985, Volkswagens produced in a plant in Pennsylvania accounted for 2.7% of U.S. auto sales. This was the beginning of a trend. In the latter half of the 1980s, other foreign-based auto companies followed the move to the U.S. In 1994, domestic transplants captured 20.5% of the U.S. new car market. This gain in the domestic transplants' share of the market was at the expense of both the domestic nameplates and imports. The domestic nameplates' share of the U.S. market fell almost 12 percentage points from 1985 to 1994 to 60.2%. Imports accounted for 25.3% of U.S. auto sales in 1985 and then their share continued to grow and peaked at 30.5% in 1987. Since 1987, however, the import share has been steadily decreasing. By 1994, it had fallen over 11 percentage points to 19.3%. The major reason for this decline in the import share of new car sales is that the foreign companies are now producing more vehicles in the U.S. and therefore their need to import autos has been reduced.

Trucks. The domestic nameplate companies are much more dominant in the U.S. new truck market then they are in the new auto market. In fact, this dominance has actually increased during the past 10 years. As shown in Table 3, in 1985, 78.9% of trucks sold in the U.S. were made by the three domestic nameplate companies, while domestic transplants accounted for 4.5% of new truck sales, and 16.6% were imports. In 1994, the U.S. domestic companies' share of U.S. truck sales was up nine percentage points to 87.8%, while the transplants' share was up only slightly to 5.9%, and the import share was down significantly to 6.2%.
 
 

Sales by Company

Autos. While General Motors, Ford, Chrysler, Toyota, and Honda accounted for the majority of U.S. new car sales during the past eight years, their respective shares of total sales have changed, as shown in Table 4. The biggest change in the distribution of auto sales by company from 1985 to 1994 was that General Motors' market share declined by 9.8 percentage points, while Honda and Toyota experienced the largest gains in market share with 3.5 and 3.2 percentage point increases, respectively. Ford also gained 1.3 percentage points in market share, while Chrysler's share dropped 2.1 percentage points. In 1995, the strongest companies and their auto market shares were General Motors, 32.1%; Ford, 19.4%; Chrysler, 8.0%; Toyota/Lexus, 9.2%; and Honda/Accura, 8.6%.
 
 

Trucks. The new truck market is dominated by Chrysler, Ford, and General Motors, and during the past 10 years, their respective shares of this market have become more balanced, as shown in Table 5. In 1985, 35.3% of the U.S. new truck market was captured by General Motors, 27.2% by Ford, and 13.0% by Chrysler. From 1985 to 1994, General Motors lost the largest amount in market share, and Chrysler experienced the largest gain in market share. By 1995, General Motors' share had fallen to 29.2%, while the shares captured by Ford and Chrysler increased to 31.9% and 21.3%, respectively.
 
 

Sales by Model Type
 

Table 6 presents the percentage breakdown of U.S. new car sales by model type-small, medium, large, and luxury-and Figure 4 graphically shows how the share of the U.S. new car market captured by each of these model categories has changed during the past 25 years. The most dramatic changes have occurred in the large car models. In 1970, large cars dominated the U.S. new car market by accounting for 43.5% of U.S. new car sales. The share captured by the large models fell precipitously following the 1973 and 1979 oil embargoes. The disruption in the supply of oil to the U.S. pushed gasoline prices up, and as a result consumers wanted more fuel efficient vehicles. By 1985, large cars accounted for only 9.8% of the U.S. market. Since 1985, the large car models have maintained their market share at about 10%; however, the large models today are generally smaller than the large models produced 10 to 15 years ago.
 
 

Figure 4 

While the large car share of new auto sales was falling from 1970 to the mid-1980s, the shares captured by the small, mid-sized, and luxury models all increased. In 1970, the small class of autos accounted for 25.5% of total sales, but by 1984 its share had increased to 39.1%. After remaining fairly flat through the end of the 1980s, the small-car segment of the market began to decrease and by 1995, the small-car share of the market had fallen to 27.1%. The segment of the U.S. new car market captured by mid-sized cars grew rapidly from 27.7% in 1970, to 42.1% in 1985.

The mid-sized share of the market leveled off through the remainder of the 1980s, but so far during the 1990s, it has been on the rise. In 1995, the mid-sized class of autos captured 48.5% of the U.S. new car sales. The luxury class of autos also has experienced a significant gain in the U.S. new car market. In 1970, luxury cars accounted for only 3.3% of new car sales, but by 1995, their share was up to 13.6%.

Trucks. The mix of truck sales by type of model has shifted in recent years. While sales have increased for each of the major types, the shares accounted for by vans and sport utility light trucks have been increasing, while the pickup share has been decreasing (see Table 7). In 1990, 51.1% of the truck market was captured by standard pickups, 28.7% by vans, and 20.2% by special purpose vehicles, which include the sport utility models such as the Jeep Grand Cherokee and Ford Explorer. In 1995, the sales mix by type of model consisted of 44.6% for standard pickups, 26.8% for vans, and 28.6% for special purpose vehicles.
 

In terms of the gross vehicle weight (GVW) of trucks, light trucks (those under 10,000 pounds) by far represent the majority of trucks sold. In 1994, 5.3% of trucks sales were heavy trucks (over 10,000 pounds) and 94.7% were light trucks, compared with the breakdown in 1983, 7.0% heavy trucks and 93.0% light trucks. The market share for the mid-sized or 6,000 to 10,000 pound category also has decreased over the last 10 years, going from 44.5% in 1983 to 20.9% in 1992. Trucks weighing less than 6,000 pounds started with 48.5% of the market in 1983 and as of 1992 captured 73.5% of the market. This significant increase in the share of total truck sales accounted for by trucks with GVW less than 6,000 pounds is due to the dramatic increase in demand for pickups, vans, and sport utility vehicles.

Purchases Versus Leases

Motor vehicle leasing has increased significantly over the past 10 years, and most of this increase has occurred in the last three to four years. When leasing a vehicle, the lessee typically pays both a smaller down payment and smaller monthly payment, compared with the down payment and monthly payment required when purchasing the same vehicle by means of a conventional loan. The lease is typically two to three years in length. At the end of the lease, the lessee usually has the option of turning the vehicle back in or purchasing it at a predetermined price. Leasing is particularly attractive to people who want to get a new vehicle every two or three years, because of the relatively lower payments.

As shown in Table 8 and Figure 5, in 1984, 8.3% of new car sales and only 1.4% of new light truck sales were leases. In the 1990s, motor vehicle companies offered more and more lease options and this proved to be a favorable option for more and more new car buyers. By 1995, over 26% of the new car transactions involved leases, and trucks acquired through leases jumped to almost 19%.
 

Figure 5 

Based on 1992 data, it appears that leasing is utilized most frequently among buyers of luxury and full-size cars. The percentage of retail deliveries that were leased, by type of vehicle and for selected years, is displayed in Table 9. In 1992, 64% of luxury cars were leased, followed by 51% of full-size, and 42% of mid-size. These leasing shares of motor vehicle sales are up considerably from their 1984 levels. In 1984, luxury cars dominated the leasing market with 34% of sales being leased, followed by full-size cars with a lease rate of 20% and mid-size cars at 8%.
 
 

According to CNW Marketing Research, a third of the vehicles leased are purchased by the lessee at the end of the lease. The remaining 67% of leased vehicles are returned to the dealers at the end of the lease and then sold as used or "program" cars. As these leased vehicles enter the used-vehicle market, they could pose a potential problem for the new vehicle market. As the vehicles currently being leased are turned back in, the large influx of late models into the used vehicle market could provide an attractive alternative to buying a new car for some individuals, and therefore may have an adverse effect on the new motor vehicle market.

U.S. Used Vehicle Sales

While most of the focus on motor vehicle sales is on new vehicles, the largest segment of total motor vehicle sales in the U.S. is used cars. In fact, sales of used vehicles represent approximately 65% of the number of total motor vehicles sold by motor vehicle dealers during the past few years. Table 10 displays U.S. used vehicle sales by dealers since 1986. Used vehicle sales by dealers registered 21.7 million units in 1986 and have increased every year since with the exception of 1990 and 1991, when they fell by less than 1%. The used motor vehicle market is not as cyclical as new motor vehicle sales are, in terms of number of units sold. From 1986 to 1994, the coefficient of variation, a statistical measure of the volatility of an item from year-to-year, measured 22.4 for new motor vehicle sales, but only 0.8 for used vehicles sold by dealers. Under the coefficient of variation, a zero measures no variability, so used vehicle sales are indeed much more stable than are new vehicle sales. In 1994, used vehicle sales by dealers totaled 28.1 million units. The used vehicle market is even bigger due to motor vehicle sales that occur among individuals. While no reliable data are available on the number of used vehicle sales that occur between individuals, it is probably larger than the number of the used motor vehicles sold by dealers.