Auto Sales Continue To Prop Up Economy

While economists continue to debate the health of the U.S. economy, auto dealers continue to ring up strong sales. Preliminary data suggest that August is on track to deliver a sixteen percent increase over year-ago levels, maintaining the strong pace the industry had set during the first half of 2012 despite some earlier concerns that the U.S. new car market might be slowing down.

Makers are steering clear of fleet sales more than in past years. Rental firms and other fleet customers have so far generated about seventeen percent of August demand, according to various tracking reports, down from the twenty-one percent tally for the first seven months of 2012.

Whether makers will continue that shift – while also keeping supply and demand in balance – remains to be seen. Even so, if the preliminary data holds true once the final days of the month have been tallied, the annualized sales rate for August could reach 14.5 million, the best figure for the year so far.

"August continues this summer’s trend of healthy growth in retail sales as dealers work to sell down inventory in time to make room for 2013 models," says John Humphrey, J.D. Power Senior Vice President of Global Automotive Operations.

Significantly, Power’s retail tracking system indicates that incentives have actually been cut this month, across the industry, despite the typical push for manufacturers and dealers to clear out showroom lots for the new model-year’s line-up.

A variety of factors appear to be propping up industry momentum. Most analysts believe the industry is still benefiting from pent-up demand from motorists who put off purchases during the worst of the recession, suggests Edmunds.com analyst Ivan Drury. Meanwhile, research by LMC Automotive shows that the average vehicle currently being traded in is at least 6.2 years old – at least a year older than the norm prior to the 2008 start of the last recession.

Japanese makers, notably Toyota and Honda, are also picking up business lost during 2011 when dealers were desperately short of inventory in the wake of Japan’s devastating March earthquake and tsunami – which led to months of production shortages.

But those makers are also gaining traction because of "significant new products," insists Toyota Senior Vice President Bob Carter, pointing to vehicles like the Camry sedan and the Lexus GS.

Another positive factor is the increased availability of financing. Three years ago, even good credit risks struggled to line up auto loans and leasing had all but stopped. Today, even sub-prime lending has become widely available – albeit at a stiff price. And most makers have returned to the leasing market, though the major deals of the past are often more difficult to find.

NAFA Fleet Management Association
125 Village Blvd., Suite 200
Princeton, NJ 08540

Telephone: 609.720.0882 Fax: 609.452.8004