Auto Sales Head for Best Since ’06 on Confidence, JobsAlan Ohnsman, John Irwin and Keith Naughton
Sales of cars and trucks stayed on a roll in July toward the best year since 2006 as automakers benefit from stronger U.S. consumer confidence, payroll gains, low-interest rates and pent-up demand for new vehicles.
A resurgent American appetite for sport-utility vehicles and crossovers helped General Motors Co., Toyota Motor Corp., Ford Motor Co., Nissan Motor Co. and Chrysler Group LLC report volume gains of 9 percent or greater. Industrywide sales grew 9.1 percent last month and remain up 5 percent this year, according to Autodata Corp. Analysts predict 16.3 million total sales this year.
“The combination of very low interest rates and the need to replace old cars was what’s driving sales in July -- and for many months now,” John Casesa, senior managing director at Guggenheim Partners, told Bloomberg Radio.
“What drives auto sales is employment growth, income growth, interest rates,” he said. “Right now, with very moderate growth in employment, very moderate growth in incomes and rates staying low for the foreseeable future, we will probably stay in this range for some period of time.”
U.S. employers added more than 200,000 jobs for the sixth straight month in July, showing the world’s largest economy is making strides toward sustaining faster growth entering the sixth year of expansion. Manufacturing also expanded in July at the fastest pace in more than three years, showing factories will help power the U.S. after a second-quarter rebound.
Job growth, generally higher wages and rising household wealth have eased financial strains on consumers and should support continued purchases of vehicles and household durable goods, according to the Thomson Reuters/University of Michigan consumer confidence survey released yesterday.
Widely available credit and a resurgent U.S. economy, marked by a 4 percent jump in gross domestic product in the second quarter, kept the annualized selling rate, adjusted for seasonal trends, above 16 million for the fifth straight month as buyers returned to dealer lots following the frigid winter.
“The low-interest rate environment gives consumers a great chance to come in and get very affordable financing or a very good lease deal, which I think has in part fueled the strength of the industry this year,” Bill Fay, Toyota’s group vice president for U.S. sales, said in a conference call yesterday.
“With interest rates forecasted to stay pretty low, I think that’s certainly one component of our optimism going forward for the year to continue at a strong level.”
Toyota outsold Ford in July to rank second in the market behind only GM. For the first seven months of the year, Ford remains ahead of Toyota by about 95,000 vehicle sales.
Light-vehicle sales rose 9 percent to 1.44 million, missing estimates for a total of 1.45 million, Autodata said. The annualized rate, adjusted for seasonal trends, rose to 16.5 million from 15.8 million a year earlier, the researcher said. Analysts had predicted a 16.7 million pace.
Ford reported a 9.5 percent sales gain for the month, Toyota’s rose 12 percent, GM had a 9.4 percent gain and Chrysler was up 20 percent. Honda Motor Co. sales fell 3.9 percent, missing the 3.l percent gain analysts had predicted.
Ford got a boost as Escape SUV sales soared 19 percent to their best July ever. Chrysler’s gain came from a 41 percent surge for Jeep SUVs, which also had its best July. Similarly, GM’s large SUVs powered its increase and Toyota benefited from the RAV4 compact utility’s best month ever.
“The on-again, off-again relationship is back on and the love affair goes on,” Jeff Schuster, an analyst with LMC Automotive, said of surging SUV sales. “Consumers are feeling good about the position of the economy. Combine that with some new products and relatively low fuel prices and the magic takes over.”
Analysts had estimated a 9.2 percent gain for Ford, a 23 percent jump for Chrysler, and 11 percent increases for GM and Toyota.
Hyundai Motor Co. and Kia Motors Corp., corporate affiliates that are also South Korea’s largest automakers, sold a combined 119,320 vehicles last month, up 3.7 percent from a year ago. That missed an expected 8.6 percent increase.
Individually, Hyundai boosted sales 1.5 percent and Seoul-based Kia reported a 6.7 percent increase.
Even as Ford results topped estimates, John Felice, the automaker’s U.S. sales chief, said industry growth is beginning to slow as the auto market nears a peak, driving up incentives by $190 per vehicle. At the same time, average prices industrywide rose $800 per vehicle last month as car buyers shift to more costly SUVs.
“We’ve seen a very healthy industry this year, but the rate of growth has slowed,” Felice said on a conference call. “On the car side of the business, incentive spending there is aggressive.”
Sales of GM’s redesigned large SUVs surged. The Chevrolet Tahoe rose 52 percent, the GMC Yukon jumped 48 percent and Cadillac Escalade sales more than doubled.
Nissan reported an 11 percent advance in sales to 121,452 for the month, falling short of analysts’ projected 14 percent increase.
The improving economy and rising consumer optimism mean auto demand isn’t likely to see “any significant downturns” for the remainder of the year, said Fred Diaz, Nissan’s senior vice president for North American sales.
“The reason I say that is the pent-up demand and the age of the average vehicle on the road today is still over 11 years old,” Diaz said in a phone interview. “That’s going to keep us primed for moderate, steady or slow growth.”
GM sales rose to 256,160 vehicles, the Detroit-based automaker said in an e-mailed statement. The company’s GMC truck brand rose 22 percent, while the Buick and Chevrolet brands both increased almost 8 percent. Cadillac fell 2.6 percent.
Revamped cars and trucks from Ford, GM 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. The analysts’ estimate of 16.3 million sales of new cars and light trucks would be be the most in the U.S. 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 also is 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 five 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.”
The automakers are in a much stronger position than the last time sales were this robust, 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 pickups and sport-utility vehicles, their most profitable models.
To continue reading this article you must be a Bloomberg Professional Service Subscriber.
If you believe that you may have received this message in error please let us know.