After years in which tons of dealerships closed, auto brands disappeared, natural disasters caused vehicle production disruptions, and consumers just didn’t have the money or desire to drop big bucks on cars, 2012 looks to be a return to good times for the auto industry.
Last year was a decent one for car sales: Dealerships sold 12.8 million new cars last year, up from 10.4 million in 2010. This year is expected to be even better for dealerships, and the auto industry as a whole.
Reporting from the annual auto dealership convention over the weekend—held, wouldn’t ya know, in Las Vegas to coincide with the Super Bowl—the Detroit Free Press rounds up all the signs and insights that indicate a terrific 2012 is in the works. After drastically trimming the number of dealerships during the worst days of the recession, automakers’ sales forces are leaner and more apt to make profits. The recession also forced dealerships to cut marketing costs—mostly by turning to the web, which is much cheaper than traditional advertising—and they seem to be keeping these cost-saving strategies in effect even as the economy rebounds. (Based on how many automakers advertised during the Super Bowl, though, it doesn’t look like they’re scaling back that much on traditional advertising.)
Perhaps most importantly, automakers and dealerships are optimistic about 2012 because the unemployment rate has declined to a three-year low, measuring at 8.3% recently. Lower unemployment obviously helps car sellers because when more people have jobs, more people can afford cars, but also because a decreasing unemployment rate tends to make consumers more confident in the economy—and more likely to feel OK about buying a big-ticket item like a new car.
Though 2012 is barely more than a month old, it’s already shaping up as a strong year for car sales. Americans bought more than 900,000 new cars in January 2012, an increase of 11.4% from the previous January.
It’s not just sales of new cars, but used cars as well, that are expected to have an outstanding 2012. The National Automobile Dealers Association anticipates strong demand for used cars in 2012, and with that comes higher prices. When adjusted for inflation, used car prices rose 3% in 2011, hitting all-time highs in the summer. This year, used vehicle prices are expected to increase again—by 1.8% by the end of 2012, on a seasonally adjusted basis, according to NADA.
Given the current high cost of gas, prices for fuel-efficient used compact and midsize cars are expected to rise more than average, by 2.7% and 2.1% respectively. That’s the scenario if fuel prices continue to hover around $3.50. If gas prices soar above $4, or even $6, which some experts say is a possibility, then demand (and prices) for gas sippers will surely skyrocket right alongside them.
In more potentially bad news for consumers, prices of new cars may rise significantly as well. SmartMoney reports that GM, in its quest to raise profits, is planning to raise prices on cars. Currently, it’s profit margin is 6%; it wants to raise than to 10%.
Finally, Bloomberg points to one more factor driving the strong pace of car sales. Lenders such as Capital One are once again approving car loans within 30 seconds, which was unheard of during the heyday of the recession.
Faster loan approval obviously bodes well for speedier, and just plain more, car sales. That’s good news for automakers and car dealerships. As for the drivers taking out those loans, well, some of them wind up wishing that process was slowed down a bit.