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Why the Car Industry Thrives

The economy may be growing slowly, but the auto industry is doing quite well, even when people are holding onto their vehicles longer and in the face of a possible workers’ strike.

American automobile manufacturers are set to have a great year with a projected 17 million new vehicles sold, the best since the Great Recession. In August, according to research firm Autodata, Americans snapped up vehicles at the fastest sales pace in 10 years. Optimism about the domestic economy, low fuel prices and financing incentives powered their purchases.

In fact, with the exception of China, worldwide vehicle sales are doing quite well, poised to his a sixth consecutive annual record. Amazingly, Volkswagen is now the No. 1 seller of cars globally, beating out Toyota for the first time. VW benefited from a strengthening market in its native German and in Europe as a whole. Economic doldrums in Japan, its home, have held back Toyota.

Ironically, with all of these new cars, the average age of cars in the United States has reached a record of 11.5 years. While some of this is certainly due to people holding onto their cars because they can't afford new ones, it also stems from the increased reliability of vehicles over the past 10 to 15 years.

Just how old are some of the cars? There are 14 million cars on the roads that are at least 25 years old. That is one for every 25 Americans. Today's college graduates weren't even born when these cars were manufactured. There are 44 million cars on the road that were manufactured 16 to 24 years ago.

What does all this mean for the future of the automobile industry? First, the used car business is big and is likely to remain big well into the future. Although the fast pace growth of sales of new cars will slow, the absolute number sold will continue to move in a positive direction as the economy improves.

And despite possible unrest on the labor front, odds are heavy against a crippling strike. The auto unions lack that kind of power anymore.

There isn't much in the news yet regarding talks between management and the unions that represent the autoworkers, but there will be soon enough. During the Great Recession, unions made concessions to keep people on the job and now that the auto industry is doing much better, the unions are likely to push hard for company concessions.

The deadline for some resolution is Sept. 14. It's possible that, if the unions and management are not able to reach an agreement, a strike or a work slowdown could occur.

Although not devastating to the economy, neither action would be beneficial. While the unions are in a stronger position today than they have been in a long time, they are not nearly as strong as they once were.

Only about half of the workers belong to the union. Additionally, Michigan is now a right-to-work state, which means that being a member of the union doesn't provide the same job security that it once did. And it means less clout for the United Auto Workers and the others.

All good news for the auto industry.

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V. Raymond Ferrara, CFP, CSA, is chairman and chief executive officer of ProVise Management Group LLC in Clearwater, Fla. 

This material represents an assessment of the market and economic environment at a specific point in time. Due to various factors, including changing market conditions, the contents may no longer be reflective of current opinions or positions. It is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Please remember that past performance may not be indicative of future results.

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