After Best Quarter in Years, How Long Will Car Sales Keep Rolling?

  • Share
  • Read Later
Tim Rue / Bloomberg / Getty Images

Toyota Motor Corp. vehicles sit lined up waiting dealer delivery at the company's logistics services inside the Port of Long Beach in Long Beach, California, U.S., on Tuesday, April 3, 2012.

Any lingering doubt about the U.S. auto industry’s recovery should have been dispelled Tuesday after virtually every major car-maker reported robust March sales, in another encouraging sign for the economy. The key question now is how long the auto industry’s strong performance can continue.

The answer, according to Michelle Krebs, senior analyst at auto research firm, is at least through the end of the year. The reason? After a brutal recession in which consumers held off buying new cars, the auto industry is only just starting to recover.

“We’re only beginning to see all of the pent-up demand being released,” says Krebs. “We expect the rest of the year to be strong, and there will be continued momentum for the next couple of years.”

After plummeting during the recession, industry-wide sales topped 1.4 million in March, a 13% increase over last year and the most since 2007, driven by continued cheap financing and increasing consumer confidence. GM, for example, posted a 12% sales increase compared to last year. Chrysler reported a 34% increase in sales; Toyota saw a 15% rise; Nissan sales rose 12.5%; Volkswagen said sales jumped 35%; and Ford said sales rose 5% for its best March in 5 years.

Demand is so strong, in fact, that South Korean automaker Hyundai finds itself in short supply of two popular models, the Elantra and the Sonata, according to the LA Times.

(More: Auto Sales Surge in March, Led by Small Cars)

Krebs said she expects to revise its 2012 projected auto sales figure above the current forecast of 13.6 million. The largest auto retailer in the country, AutoNation, recently boosted its 2012 sales forecast to 14.5 million from 14 million, and Volkswagen has raised its full-year forecast to 14 million from 13.7 million, according to Reuters. GM also predicts 2012 sales to exceed 14 million.

By contrast, sales dipped to 10.4 million in 2008.

In an indication that pent-up demand remains strong, Krebs pointed out that the average age of cars still in use rose dramatically as people held off making new auto purchases during the recession. “We have never seen vehicles this old on the roads,” she says. “And the trade-ins are the oldest we’ve ever seen.”

The average car on the road is now 11 years old, according to Reuters, and that includes many high-mpg vehicles like SUVs. Krebs says consumers have more choice than ever before when it comes to fuel-efficient models, which are proving especially attractive as gas prices have risen higher recently. GM said March was the first month in which it sold more than 100,000 cars with fuel-economy ratings above 30 miles-per-gallon.

Another factor that will continue to drive sales into the future is the availability of credit, which dried up in 2008. “We’re starting to see banks get back into auto financing again,” says Krebs. A recent study found that credit union auto financing, for example, is just returning to pre-recession levels. Throw in the Fed’s continued low-interest rate policy, and auto consumers can expect to see favorable loan rates for the foreseeable future.

That’s going to continue to drive sales, Krebs said: “We’re not going to see 15 or 16 million cars sold this year, but those numbers are in the crystal ball, for sure.”