Will Auto Sales Ever Really Recover?

Ever since 2008, auto sales in the U.S. have been sharply lower than the prerecession historical trend. Last year's total of 12.8 million vehicles sold seemed quite strong by recent standards, but it was a far cry from the 16-million-plus totals that were routine in the middle of the last decade.

Automaker executives often speak of "pent-up demand" when expressing their hopes that auto sales will continue to rise. All those cars and trucks sold last decade will wear out and need replacement, the thinking goes, and eventually the need for replacement will drive consumers back to dealers, and auto sales back to their pre-economic-crisis norms.

It's a good theory. But a new survey pokes some big holes in it.

5 million buyers may have left the market
The survey, released this week by Detroit-area financial advisory firm AlixPartners, concludes that there are 5 million fewer potential car-buyers today than there were five years ago, and that those buyers aren't going to come back to dealers anytime soon.

Where did those potential buyers go? There are a few factors at work:

Lingering high unemployment. Folks without jobs don't buy new cars, as a general rule. When people are feeling squeezed, they either make do with what they have or seek cheaper replacement options like inexpensive used cars. That trend was particularly evident a year or two ago when we saw used car prices increase sharply while new car sales lagged, but it's still happening.Automakers' costs are rising. Everything from rising commodity prices to more stringent safety and fuel-economy standards around the world is putting upward pressure on new car prices. Companies like Ford (F) and General Motors (GM) have made enormous strides in lowering their fixed costs, but even so, margins remain in the 5% to 6% range. Preserving those means that car prices will have to continue to rise, and that will continue to shut some cash-strapped potential buyers out of the new car market.Changing demographics. There are two key factors here, says the firm. First, aging baby boomers are driving fewer miles than people their age were driving in 2001, and a smaller percentage of people are driving. That means fewer cars getting less wear and tear. Second, younger people today are less enthusiastic about car ownership than those of earlier generations. They are less likely to buy cars, and less likely to prioritize a new car over other purchases.

So what does all this mean for the automakers -- and for the U.S. economy?

Dimmed expectations, but prospects are still solid
For the automakers, it's not the end of the world. As noted above, Ford and GM (and Chrysler) have lowered their fixed costs significantly, meaning that they can be profitable at much lower levels of sales now than in the past. Ford and GM have both said that they will be profitable as long as U.S. auto sales stay above the 10.5-million mark -- a number that would be expected only during a very deep recession. Toyota (TM), which has overcome a series of crises to regain third place in the U.S. market, is likely in a similarly strong situation.

What's more, all of the Detroit automakers have a much-improved range of products across the board. Before, Ford and GM would make hay by selling expensive big trucks and SUVs during good times, then lose sales to imports when gas prices rose or the economy sank. Now, strong fuel-efficient entries like the Ford Focus and Chevy Sonic compare well with small cars from the likes of Toyota and Honda (HMC), and generate good profits for their makers.

Finally, the good news, of course, is that auto sales are rising -- so much so that Ford's production of some key models may be maxed out. AlixPartners sees U.S. sales breaking 14 million this year, and sales totals through the first five months of the year have been very strong across the board, from small cars to pickup trucks.

But if AlixPartners is right, a return to the 16-million level won't happen anytime soon -- certainly not before 2015 -- and as auto markets around the world continue to cool off, that's going to put a damper on the expectations of automakers in Detroit and elsewhere.

Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors and creating a synthetic long position in Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.