Five key factors are helping improve the outlook for U.S. car dealers and new vehicles sales will reach 12.9 million units in 2011, according to Paul Taylor, the chief economist of the National Automobile Dealers Association (NADA).
Taylor made the comments in a press conference at the NADA Convention and Expo in San Francisco on Sunday. While this number is still well off recent levels, it is a 12 percent increase over the 11.55 million sold in 2010.
Taylor briefed reporters about the reasons for the projected increase in 2011 sales, but also cautioned that declining real estate values were still a major concern. “The problem in the real estate market is too many houses,” said Taylor. “The car market has too few used vehicles.” Taylor told reporters the average age for U.S. cars on the road is now more than 10 years.
Having fewer used vehicles available, however, is working in some consumers’ favour because it has improved the trade-in equity on their one- to five-year-old vehicles, based simply on the laws of supply and demand. “The shortage of used cars is one more pillar of strength for the new-car market,” said Taylor.”
Here’s are the five factors Taylor listed as reasons for boosting new-vehicle sales in the U.S. this year, some of which may also be applicable in Canada:
1. More new car and truck choices: Auto manufacturers are producing a wide variety of new cars and trucks that are headed to dealer showrooms. There will be many new hybrid and electric vehicles as well as sedans, crossovers and SUVs with more fuel-efficient internal combustion engines, including several new models from China. “A revitalized auto industry benefits everyone—every consumer, every dealer and every manufacturer,” Taylor added.
2. Available credit at historically low interest rates: The Federal Reserve Board at its last meeting indicated that the performance of the economy is “likely to warrant exceptionally low levels for the federal funds rate for an extended period,” which means automaker finance companies and other lenders will be in a position to offer very attractive financing rates on new-car loans, Taylor says.
“Recovering world market conditions and the Federal Reserve’s current policy will accelerate the recovery of new-car and -truck sales in 2011,” says Taylor. “Concern about federal budget deficits and long-term inflation may contribute to higher 30-year fixed rate mortgage rates, but loan rates for car loans four to six years long are likely to see only modest increases over the next year as the economy grows.”
3. Tax certainty leads to economic growth: The extension of tax policy (often called the “Bush tax cuts”) by Congress in December 2010, combined with the budget extension to fund the government, will provide at least a two-year horizon for business investment and consumer planning that should bolster economic growth, Taylor says.
4. Stock market rise boosts luxury car sales. The Dow Jones Industrial Average and S&P 500 index closed in mid-December 2010 at their highest levels since September 2008. “Continued stock market gains will boost luxury car sales this year,” according to Taylor. “Already strong sales of luxury vehicles have been assisted by stock market gains. Stock performance influences those who own significant amounts of stock outside of retirement programs, and who buy most of the new luxury vehicles.”
5. Rising gasoline prices expand vehicle sales mix: “While never good for the economy, higher gas prices increase consumer demand for small cars, hybrid vehicles and diesels,” says Taylor. “New cars are more fuel efficient.” Many industry analysts are predicting that gasoline prices will exceed $3.50 a gallon in early 2011. In the summer of 2008, gasoline prices hit record levels of more than $4 a gallon.
Taylor says that higher gasoline prices will also increase demand for the more expensive hybrids that typically languish on dealer lots when gasoline prices are lower. Sales of diesel cars and trucks will increase as well, he says.
“In the first quarter of 2011 and beyond, new gasoline and diesel hybrid cars and light trucks entering the market will get a stronger look from consumers concerned by high gasoline prices,” Taylor says.
“According to the NADA Used Car Guide, the value of small cars and hybrids during times of high fuel prices will increase in the used-vehicle market, and values for large vehicles in the light-truck segment, such as truck-based SUVs, will moderate,” he says.
Auto sales were led by crossover utility vehicles (CUVs), which accounted for about 25 percent of total U.S. new-vehicle sales in 2010. CUV sales, which grew by about 24 percent last year, more than double the growth rate of overall new-car and -truck sales nationwide.
The National Automobile Dealers Association, founded in 1917, represents about 16,000 new-car and truck dealers with about 34,700 franchises both domestic and international. For more information, visit www.NADA.org.
