Sales of New Cars to Remain Strong, Steady
IRVINE, Calif. -- New-vehicle sales are expected to grow nearly 6% in 2013 to 15.3 million units overall. This would break the three-year trend of double-digit sales growth since 2010.
“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 factors contributing to the ongoing recovery, Kelley Blue Book believes that pent-up demand, high used-vehicle values, improving availability of credit and low interest rates have played direct roles in the auto industry's ability to outperform the economy. Each factor has been critical to-date and will continue to drive sales this year and beyond.
Auto sales also have outperformed their historical relationship to consumer confidence by a significant margin. Despite expectations for consumer confidence remaining 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.
While economic growth has remained relatively weak and explains only part of the auto sales recovery, Kelley Blue Book sees pent-up demand playing a more critical role in the rebirth of the industry. According to Polk, registered vehicles on the road in the United States are 11 years old on average; the highest ever recorded.
"Vehicles produced during the past few model years are significantly higher in quality than those produced in previous decades," Gutierrez pointed out. "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 because of 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 age and economic conditions slowly improve, buyers are expected to continue to return to market.
When auto sales hit their low point in 2009, leasing all but dried up. The lack of lease returns the past several years has played a pivotal role in the used-vehicle supply shortfall that has driven used-vehicle values to record highs. The reduced lease returns have also reduced the number of consumers who traditionally would be seeking a new vehicle at the end of their lease term. While this reduced the number of in-market shoppers in recent years, Kelley Blue Book anticipates this trend to begin to reverse in 2013.
Leasing bounced back in 2010, increasing nearly 700,000 units year-over-year. Kelley Blue Book believes that the return in leasing will generate as many as 300,000 additional in-market shoppers this year, a number that will increase in 2014 and beyond. With lease returns expected to return to more normal levels during the next few years, Kelley Blue Book anticipates new-vehicle sales to grow and used-vehicle values to soften.
Consumers looking to purchase a new vehicle this year will find affordable pricing on some of the best vehicles being produced today. On average, consumers can expect to find new vehicles priced at approximately 94% of MSRP, not including incentives. Not only are transaction prices quite favorable for consumers, but interest rates also remain at historically low levels. "Consumers with a solid credit history should have no trouble obtaining a loan for 3% or less for up to 72 months," Gutierrez said. "Many automakers continue to offer loans of 0% 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% 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% 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, Gutierrez said. 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 one- to two-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.
Published by The Business Journal, Youngstown, Ohio.
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