At first glance, June 2012 appears to be shaping up as a fairly big month for auto sales. Industry experts estimate that 1.2 million new cars will be sold by the end of June, a rise of 18% compared to last June, and the most cars sold in the month since 2007. Even so, there are several reasons why automakers are worried.
Both TrueCar and Edmunds anticipate roughly 1.2 million new cars will be sold in the U.S. this month. Apparently this isn’t good enough, even though the figure represents a rise of 18% over sales last June.
How could an 18% increase in sales be a bad thing? Well, it’s bad if insiders and automakers were banking on much stronger sales—and there was good reason for them to do just that.
Last June, auto sales were especially weak because prices were high and dealers had limited supplies of vehicles, both of which came at least partially as a result of the devastating tsunami in Japan. For this June to be deemed a truly strong month for auto sales, units sold would have easily increased by more than 20%, as they did in February.
In fact, sales this month are down 7% compared to May 2012. As Edmunds notes, the May-June sales decline is taking place even as manufacturers flood the marketplace with incentives that end on July 2 to “goose sales” numbers. The incentives and willingness of dealers to sell at lower prices has resulted in a situation in which consumers are paying $500 less, on average, than they were a year ago for new vehicles, according to Kelley Blue Book.
In light of all of these other factors pumping up auto sales, an 18% increase is being viewed as underwhelming. Based on June sales results, Edmunds and TrueCar have both lowered their predictions for how many cars will be sold through all of 2012—to 13.4 million and 13.6 million, respectively, down from the 13.8 million pace set in May.
Lagging consumer confidence, continued high unemployment rates, and general economic uncertainty are certainly playing roles in relatively weak car sales. But so is the rise of categories of consumers who, for varying reasons, aren’t buying automobiles like they have in generations past. Often the reasons for staying away from the car market are as much cultural as they are economic.
Today’s young people in particular aren’t buying cars. They’re also not driving as much as young Americans did in the past. There has been a notable decrease in teenagers with driver’s licenses, and a growing consensus among millennials that car ownership is not necessary—and also “not cool.” (The fact that Americans in this 18- to 34-year-old demographic are likely to be broke lately obviously also factors in.)
In addition to the young, a recent Edmunds post names two other groups who have been shying away from car purchases: 1) “The Subprime Lineup,” people who have poor credit scores, likely related to the awful state of the economy over the past few years, and who have lost access to new-car loans; and 2) “Incomers,” folks who earn less than $50,000 per year, and whose registrations of new cars decreased 10% from 2007 to 2011.
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Come to think of it, there’s a pretty good chance that many consumers who fit into one or both of these categories (Incomers and Subprime borrowers) also happen to be in the 18- to 34-year-old demographic. In any event, if (when?) the economy picks up, it’ll be particularly important for automakers to figure out ways to convince these “stubborn” consumers of the merits of car ownership. And if Gen Y remains neutral on buying cars? Expect underwhelming sales figures for years, if not generations, to come.