The Auto Industry is Doomed

Well, not totally doomed. And not just the US auto industry. And for different reasons than usually cited.

The usual mantra is "the US auto industry is doomed because they have really high legacy costs, and their quality isn't up to international standards, and they only make gas guzzlers."

My thoughts are that it's the middle one that's going to hurt them all.

See, 20 years ago you were lucky if your US car lasted 50,000 miles. Foreign cars were better, but not much. Now, 100,00 mile warranties are expected. And if quality continues to improve, you can expect that to increase.

How many miles can you really expect to drive a car, though? If the 100,000 miles was a pure mean value the answer would be "well, on average 100,000 miles." But auto makers don't actually want to have to make good on the warranty. Therefore cars last more than 100,000 miles. Given their thin margin, would it be safe to guess that most cars will actually not die until, say, 200,00 miles.

Now the US DOE estimates that the average car is driven about 12,000 miles per year, so most of the new cars we currently have will last for about 16 years.

Given there are already about as many cars as people in the US, so there's no room for growth, what kind of profit can you make selling a new car to people only once each 16 years?