July 31 (Bloomberg) -- Sales at Ames Ford Lincoln in Iowa have risen fivefold in the last 18 months as buyers embrace low-cost financing on popular models like the Fusion sedan and F-150 pickup from Ford Motor Co.
The “new car business is in very good shape right now,” said Rick Pattison, the dealership’s new car manager. “New cars are really better than they have ever been.”
The revamped cars and trucks from Ford, General Motors Co. and other automakers are luring buyers to dealerships in droves and prompting analysts, already bullish about the industry’s prospects, to issue even more optimistic projections. Analysts estimate deliveries of new cars and light trucks will rise to 16.3 million by the end of the year. The new estimate means this year would be the biggest for auto sales since 2006, when 16.6 million units were sold.
Automakers are benefiting from widely available credit and low interest rates, said Jessica Caldwell, an analyst with Edmunds.com. A change in buying habits is also making owning a new car more affordable over time with leasing and longer-term loans attracting buyers, she said.
“Even though cars are more expensive now, people are leasing now more than we’ve seen in a long time and loan rates are averaging out around 5 years,” said Caldwell, who forecasts sales this year of 16.4 million vehicles. “When you’re leasing or you’re spreading payments out over six or seven years as opposed to three or four, all of a sudden that car doesn’t appear to be as expensive.”
Total light-vehicle sales are forecast to rise about 10 percent in July to 1.45 million with one more sales day than a year earlier, according to the average of 10 analyst estimates compiled by Bloomberg. Adjusted for seasonal trends, the annualized selling rate may rise to 16.7 million, the average of 13 estimates, up from 15.8 million a year earlier.
Each major automaker, with the exception of Volkswagen AG, is predicted to report a year-over-year sales increase. Chrysler Group LLC may report a sales jump of 23 percent from a year earlier, analysts predict. Ford and General Motors may see gains of 9.2 percent and 11 percent, respectively.
Strong sales figures over the past three months have allowed the industry to compensate for a sluggish start to the year, when frigid winter weather in the Northeast and Midwest kept buyers away from dealer lots, Caldwell said.
Sales are on pace for a fifth consecutive year of growth, according to the average estimate from 12 auto analysts surveyed by Bloomberg.
Adjusted for seasonal changes, the selling rate is expected to be above 16 million in July for the fifth consecutive month, according to analysts’ estimates.
The automakers are in a much stronger position than the last time sales figures were this high, Caldwell said.
In 2006, U.S. automakers GM, Chrysler and Ford were facing increased competition from Asian manufacturers, higher labor costs and rising gasoline prices that dinged sales of pickup trucks and sport-utility vehicles, their most profitable models. Three years later Chrysler, the third-largest U.S. automaker, and GM, the largest, declared bankruptcy and were rescued by federal bailouts as industrywide sales dipped to a 27-year low, with just 10.4 million units delivered.
Ford avoided a similar path to GM and Chrysler when former Chief Executive Officer Alan Mulally instituted a drastic restructuring at the second-biggest U.S. automaker after taking the helm in 2006, mortgaging assets including the Dearborn, Michigan-based company’s logo. Mulally discontinued its Mercury brand, and divested premier brands Jaguar, Aston Martin, Volvo and Land Rover.
“Mulally did a great thing when he mortgaged every last thing at Ford down to the paper clip, and now it’s paying off,” said Pattison, the Iowa Ford dealer. “It sent a message to everyone that things needed to change, and they did.”
While Ford’s line of pickup trucks, anchored by the F-150, have sold well in rural Iowa, attractive payment options and features in cars such as the Focus and Fusion have also helped to bolster sales, Pattison said. The new F-150 is set to arrive in showrooms at year’s end and will lose more than 700 pounds (318 kilograms) to improve fuel economy, mostly by using aluminum instead of steel in its body.
“I think Ford has done a great job when it comes to incentivizing these new cars,” he said.
The average spending per vehicle on light-duty trucks fell 10 percent during the first half while Ford’s truck spending rose 2.3 percent, according to researcher Autodata Corp.
GM plans to introduce 15 new or refreshed models this year, compared with Ford’s 23.
“Production, for one thing, is much healthier now. The American automakers aren’t just producing to produce cars now. They’re doing a much better job of meeting supply and demand,” said Caldwell.
While sales in the second half of the year should be strong, some of that momentum will come from pent-up demand as drivers who stayed away from dealer lots during winter months start shopping, Alec Gutierrez, an analyst with Kelley Blue Book in Irvine, California.
“We have to remember that January and February came in quite weak, so some of what we are seeing could be purchases that were delayed at that time,” Gutierrez said.
“The second half of the year should be a good one with the finance environment as favorable as ever and tons of compelling product available for consumers,” he said.
Gutierrez’s forecast for 16.3 million vehicles this year hasn’t changed even with a strong sales outlook for the rest of the year, he said.
Leasing, one of the factors fueling sales growth now, could hamper the industry’s sales going forward, said Edmunds.com’s Caldwell. As a large number of off-lease vehicles enter the used-car market that could hurt residual values and make leasing less attractive, she said.
“I’m a bit conservative when it comes to predicting what’s happening a few years down the line,” she said. “Leasing is a big part of that, but I’d certainly expect sales to be higher than we’re seeing now in 2015 and 2016, if not crossing over the 17 million sales number a lot are hoping for.”
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