NADA: Economic Conditions Jell for Higher New Car Sales in 2012

LAS VEGAS, Feb. 4, 2012 /PRNewswire/ -- Sales of small cars, SUVs and other light trucks will lead the way toward what Paul Taylor, chief economist of the National Automobile Dealers Association, predicts is a rebuilding year for the auto industry resulting in 13.945 million new cars and light trucks purchased and leased in 2012.

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Fulfillment of that forecast in 2012 will mark the third consecutive year of rising new vehicle sales. In 2009 the auto industry, like the rest of the U.S. economy, hit a roadblock and only 10.4 million new cars and trucks were sold, down from 13.2 million units in 2008. In 2010 the sales grew to 11.55 million and in 2011 another boost brought the figure to 12.7 million.

Although Taylor predicts that sales will grow this year to a stronger level, the industry is not yet ready to return to a repeat of the 16 to 17 million unit highs seen during the 2000 to 2007 years.

"Those figures were not obtained during normal sales conditions," Taylor said at a press briefing during the NADA Convention and Expo in Las Vegas, which runs through Monday, Feb. 6. "Recent sales are what we would expect from a normal growing economy coming back from recession."

A return to better credit conditions, more generous incentives from manufacturers and low interest rates, are all credited for the turnaround in this year of economic recovery.

Taylor also says that the 2011 supply of new cars was constrained because of natural disasters in Japan and Thailand. That resulted in slower sales at dealerships during the normally red-hot summer sales season.

Now that dealers are able to obtain more inventory, especially CUVs, other light trucks and small sedans, the sales of those and other vehicles should continue to rise.

"With the age of cars and trucks on the road today at an average 11.1 years, many consumers feel they can no longer delay making a purchase of a new or newer vehicle," he said.

Here are five of the top reasons for Taylor's upbeat forecast:

1. PENT-UP CONSUMER DEMAND

U.S. consumers have been primed to buy or lease since last year when the economy started to turn. Although generous dealer incentives and a return to more normal credit options fueled that excitement, dealers couldn't get car on their lots.

Now that production is reestablished, Taylor predicts manufacturers and dealers can better serve consumers, and all will win.

An increase in attractive new models highlighted at the auto shows has fueled consumer demand along with favorable economic conditions for sales.

"Consumers want new cars and light trucks," says Taylor. "We can see that in strong auto show attendance and sales numbers for January."

The numbers also show that one to five year old used vehicles are in short supply and selling at higher-than-usual prices. That has resulted in more consumers seeking out new car purchases.

2. RETURN TO STABILIZED CREDIT

Anyone involved in the auto industry knows that banks and other lenders tightened credit a few years ago.

In an effort to spur the U.S. economy, the Federal Reserve has kept interest rates low.

"Interest rates on new car loans will remain historically low in 2012 and 2013, due in part to policy decisions by the Federal Reserve Board to keep rates low and the U.S. economy growing," Taylor added. "As a result, affordable credit will be widely available in with more automaker finance companies offering low-interest and interest-free loans for up to 60 months."

3. AN INFLUX OF OPTIONS

General Motors, Ford, Chrysler and Volkswagen, heartened by the boost in consumer confidence, have been quick to launch new products that compete with those offered by other automakers. The excitement over styling, fuel efficiency and other options has driven more consumers to the showrooms.

"The interest in new cars also reflects the lack of used cars with low mileage," says Taylor. "During the recession, 5 million cars didn't come into the marketplace as trade-ins."

4. THE WILD CARD – GASOLINE PRICES

Gasoline prices could hurt or help sales in 2012. In 2011, gasoline prices averaged $3.51, up 72 cents per gallon from 2010's average, according to industry sources. This year, analysts predict another boost in prices that could bring gasoline prices to $4.13 a gallon.

However, the positive news is that the winter has been mild across the U.S. and may help keep prices from moving upward during the summer, he said.

The pent-up demand and fuel efficiency of vehicles means that buyers will shop for the new cars and trucks they most want, especially since older, less-efficient used vehicles have higher price tags than in past years for a given mileage level and age. Of course whenever gasoline prices jump, a boost in sales of small and alternative fuel vehicles occurs, Taylor said.

Overall, there was about a 10 percent drop in sales for alternative fuel vehicles last year, which is consistent with modest gas price increases," he said.

"Many consumers think if they're going to buy SUVs or other light duty trucks, they had better do it now, with gas reasonably affordable," says Taylor, noting expected future regulations also prod consumers to buy such vehicles now.

5. HOME PRICES

Although real estate prices and values are still falling in some states, they appear to be stabilizing overall, he said. That will continue to boost consumer confidence, which will translate into increased interest in new car shopping.

"Stabilizing home prices will support stronger car and light truck sales over this year," Taylor said.

The NADA Story

The NADA story began in 1917 when 30 auto dealers traveled to the nation's capital to convince Congress not to impose a luxury tax on the automobile. They successfully argued that the automobile is a necessity of American life, not a luxury. From that experience was born the National Automobile Dealers Association. Today, NADA represents nearly 16,000 new-car and  -truck dealerships with 32,500 franchises, both domestic and international. For more information, visit www.nada.org.

SOURCE National Automobile Dealers Association