From the Wires
Annual Car Sales Strength Expected To Slow Following Three-Year Trend Of Double-Digit Growth, According To Kelley Blue Book Analysts
Industry Sales Will Continue to Outpace Economic Growth; Affordable Pricing and Credit Environment Keeps Consumers Coming Back
By: PR Newswire
Feb. 13, 2013 05:00 AM
IRVINE, Calif., Feb. 13, 2013 /PRNewswire/ -- New-vehicle sales are expected to grow nearly 6 percent in 2013 to 15.3 million units overall, breaking the three-year trend of double-digit sales growth that has persisted since 2010, according to Kelley Blue Book www.kbb.com, the leading provider of new and used car information.
"Although the sales pace is expected to slow this year, automakers have demonstrated that they can generate solid profits with sales at current levels, which is a strong indication that they will remain disciplined by continuing to match production to meet demand," said Alec Gutierrez, senior market analyst of automotive insights for Kelley Blue Book. "Sales growth won't come easily, especially considering the challenges facing the industry in today's economy. While economic growth is expected to arrive slowly in 2013, there are several indications that point toward solid auto industry sales growth in the years ahead."
Among the various factors contributing to the ongoing recovery, Kelley Blue Book believes that pent-up demand, high used-vehicle values, improving credit availability and low interest rates all have played a direct role in the auto industry's ability to outperform the economy. Each of these factors has been critical to-date and will continue to drive sales this year and beyond.
Auto Industry Sales Will Continue to Outpace Economic Growth
Today unemployment remains at an uncomfortably high 7.8 percent, while consumer confidence is below 60, which is notably better than in 2009 but well below the 4.5 percent unemployment rate and 100+ consumer confidence readings from 2007. This is important to note since 2007 was the final year of a 10-year span in which the auto industry consistently posted sales of 16 million units or more. Although the economy has recovered slowly and still has a long way to go before unemployment and consumer confidence are back to levels last seen in 2007, Kelley Blue Book doesn't see a reason why auto sales cannot continue to outperform the pace of the economic recovery.
"Looking at the historical relationship between unemployment and auto sales from the 1980s through 2007, unemployment would need to be below 6 percent to generate auto sales of 16 million units or more," said Gutierrez. "According to estimates from the Federal Reserve, unemployment only will drop down to 7.4 percent in 2013 at best; a point that would historically justify sales of only 13 million to 14 million units. However, since 2010, new-car sales have outperformed their traditional relationship with unemployment, which means that sales in excess of 15 million units clearly are attainable."
Auto sales also have outperformed their historical relationship to consumer confidence by a significant margin. Despite expectations for consumer confidence to remain well below levels historically required to justify sales of 15 million units or more, Kelley Blue Book believes auto sales will continue to grow as predicted provided that consumer confidence remains stable.
Pent-Up Demand Drives Growth Since 2010, Will Persist in 2013
"Vehicles produced during the past few model years are significantly higher in quality than those produced in previous decades," said Gutierrez. "In the 1990s, consumers came to expect a vehicle produced by a Japanese manufacturer to last 100,000 miles and beyond. Now we can say the same about vehicles produced by all manufacturers. Whether shopping for a Toyota, Honda, Chevrolet, Ford or Hyundai, consumers can be reasonably assured that their vehicle will hit 100,000 miles with ease, and 200,000 miles or more with proper maintenance and care."
With consumers delaying the purchase of a new vehicle due to economic hardship and improved vehicle quality, Kelley Blue Book expects the average age of vehicles on the road to continue to increase. As vehicles continue to get older and economic conditions slowly improve, buyers are expected to continue to return to market.
Leasing to Aid Sales Growth in 2013
Affordable Pricing and Credit Environment Keeps Consumers Coming Back
"Consumers with a solid credit history should have no trouble obtaining a loan for 3 percent or less for up to 72 months," said Gutierrez. "Many automakers continue to offer loans of zero percent for up to 60 months, as well as rock-bottom lease payments around $160 per month for a compact and only a few dollars north of $200 per month for a mid-size."
Leases accounted for approximately 18 percent of all vehicles sold in 2012, returning to levels regularly seen prior to the collapse in industry sales in 2009. Federal Reserve Chairman Ben Bernanke indicated that interest rates will remain near zero through at least 2015, so consumers looking for a new vehicle can expect to find affordable pricing on new models for several years to come.
The affordability of new vehicles has been made even more attractive by the high values maintained by used cars. Although approximately 8 percent below the all-time highs seen in 2011, late-model used-car values remain uncomfortably close to new-car transaction prices, influencing many consumers to purchase new rather than used. This phenomenon is most pronounced for high-demand vehicles such as subcompact, compact and mid-size cars. These vehicles all have been significantly upgraded in recent years and generate excellent fuel economy for an affordable price. As a result, they have maintained extraordinarily strong values in the used-car market. In fact, the difference between a five-year payment on a new car and a 1- to 2-year-old used model is as little as $30 per month apart in some cases. Kelley Blue Book expects used-car values to continue to ease from current highs, so this phenomenon likely will play less of a role in the years ahead.
For more information and news from Kelley Blue Book's KBB.com, visit www.kbb.com/media/, follow us on Twitter at www.twitter.com/kelleybluebook (or @kelleybluebook), like our page on Facebook at www.facebook.com/kbb, and get updates on Google+ at https://plus.google.com/+kbb/.
About Kelley Blue Book (www.kbb.com)
SOURCE Kelley Blue Book
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