Economic Fears May be Rising, But New-Car Sales Are Still Expected to Rise

COMMENTARY

Stephen W. Wade
 2011 NADA Chairman
Stephen Wade — September, 2011

If you've been paying attention to the news lately you have every reason to be more than a little confused. One day the headlines tell us our economic recovery has hit a rough patch, causing consumers to pull back on "big ticket" purchases like cars and trucks. And the next we're hearing the auto industry is driving our nation's economic revival, as manufacturers ramp up production and dealers start reinvesting in their facilities and hiring more employees.

President Obama is even looking to the auto industry for advice on how to spur hiring in other industries. He recently called Ford CEO Alan Mulally to discuss supply chain disruptions caused by the earthquake and tsunami in Japan and ways to stimulate exports and create jobs. And just when we thought the stock market's roller coaster ride was going to rattle consumer confidence even more, the Commerce Department reported that orders for autos and auto parts jumped 11.5 percent in July, the most in eight years.

In other words, the economy might be sputtering along, but Americans still need cars and trucks to get to work. J.D. Power & Associates says the sales rate for September on an annual basis is set to reach 12.9 million vehicles, compared with the 12.1 million rate in August. And with the average age of cars and light trucks at 10.6 years, manufacturer incentives increasing this fall and more available inventory, new-car sales should only increase in the last four months of the year, says NADA Chief Economist Paul Taylor. “When consumers discover that the economy is still growing in the U.S. and Europe, although slowly, consumer confidence will improve," Dr. Taylor says.

Unlike several analysts who reduced their sales forecasts for 2011 as a result of economic conditions, NADA is sticking to its projection of 12.9 million light-vehicle sales nationally by year end, which would put us about 12 percent above the 11.5 million units we sold in 2010. Taylor expects new-vehicle inventory to return to reasonable levels in September, which will provide car shoppers with more choices. "Auto loan rates for new cars will remain attractive this fall as a result of meager economic growth,” he said. And depending on what happens on Wall Street, luxury car sales will either increase or decrease in the coming months.

In times of economic uncertainty, it’s best to take the longer view. That’s what NADA does with its sales forecasts despite the “sky-is-falling” headlines.

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