Car Sales: Still Vrooming

Next year could set a record

With 1999 the sixth consecutive year for strong auto and light truck sales, many economists are looking for consumers to take a breather. But the red-hot auto market shouldn't cool off anytime soon, argues David L. Littmann, chief economist at Comerica Inc., a Detroit-based bank. Littmann predicts that the combination of an aging auto fleet, falling car prices, and a robust economy will push total unit sales up from an expected 16 million units this year to 16.5 million units in 2000. That would surpass 1986's record of 16.3 million.

Part of the strong demand is due to the need to replace old vehicles. Despite the buying binge of recent years, Littmann estimates that by next year, consumers will have owned their cars for a median of 8.4 years, up from 7.7 in 1995. In part, that's because vehicles have become more reliable. But it's also true that the economic boom has lasted long enough that vehicles bought early in the expansion are now ready to be replaced.

Equally important, Comerica's auto-affordability index shows that motor vehicles are at their most affordable level for U.S. consumers in 19 years. That's due partly to falling prices: New-car and truck prices fell 0.1% from last year, despite the strong demand. Competition, rising productivity, and the declining costs of raw materials such as steel have helped hold the line on auto prices.

The other powerful driver behind the robust demand for autos is income growth. Comerica estimates that real disposable income must rise by at least 2.7% annually for consumers to keep buying autos at the current pace. Real income grew 4.6% in the first quarter of this year and should rise at least 3% next year, Littmann says. Adding to the expected strength: reviving economies overseas that will buoy auto exports from the U.S.

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