NADA Economist: New-Car Sales Headed for Double Digit Percentage Gains in 2011

SAN FRANCISCO, Feb. 6, 2011 /PRNewswire-USNewswire/ -- Paul Taylor, chief economist of the National Automobile Dealers Association (NADA), said today that new-vehicle sales will reach 12.9 million units in 2011 as consumers benefit from higher trade-in equity and improving credit.

Last year, 11.55 million light vehicles were sold. A market of 12.9 million new vehicle sales this year would be a nearly 12 percent increase over 2010.

But Taylor warns that declining real estate values in many states have caused some consumers to pull back on large purchases like cars, and that trend will continue to play a role in new-car sales in 2011.

"The problem in the real estate market is too many houses," Taylor said at the NADA Convention and Expo in San Francisco, which ends Monday. "The car market has too few used vehicles."

The shortage in used vehicles is working in some consumers' favor, however, Taylor says, because it has improved trade-in equity on their one- to five-year-old vehicles. That trend is paying dividends for dealers, too, because used-vehicle inventories are now more valuable.

"The shortage of used cars is one more pillar of strength for the new-car market," Taylor says. "The debut of nearly 50 cars and trucks at the Detroit Auto show is another. So we have many strong indicators that the auto industry is making a comeback and will lead to increased sales in 2011."

Here's a list of NADA's top five factors that will accelerate new-vehicle sales this year:

1. MORE NEW-CAR AND TRUCK CHOICES

Auto manufacturers are producing a wide variety of new cars and trucks that are headed to dealer showrooms.

There will be many new hybrid and electric vehicles as well as sedans, crossovers and SUVs with more fuel-efficient combustion engines, including several new models from China.

"A revitalized auto industry benefits everyone—every consumer, every dealer and every manufacturer," Taylor added.

2. AVAILABLE CREDIT AT HISTORICALLY LOW INTEREST RATES

"Credit availability at a time of very low interest rates will drive new-vehicle sales this year," Taylor says.

The Federal Reserve Board at its last meeting indicated that the performance of the economy is "likely to warrant exceptionally low levels for the federal funds rate for an extended period," which means automaker finance companies and other lenders will be in a position to offer very attractive financing rates on new-car loans, Taylor says.

"Recovering world market conditions and the Federal Reserve's current policy will accelerate the recovery of new-car and -truck sales in 2011," Taylor says. "Concern about federal budget deficits and long-term inflation may contribute to higher 30-year fixed rate mortgage rates, but loan rates for car loans four to six years long are likely to see only modest increases over the next year as the economy grows."

"Federal regulators need to make sure that loans continue to be approved for car shoppers with reasonable credit," Taylor says.

3. TAX CERTAINTY LEADS TO ECONOMIC GROWTH

The extension of tax policy (often called the "Bush tax cuts") by Congress in December 2010, combined with the budget extension to fund the government, will provide at least a two-year horizon for business investment and consumer planning that should bolster economic growth, Taylor says.

4. STOCK MARKET RISE BOOSTS LUXURY CAR SALES

The Dow Jones Industrial Average and S&P 500 index closed in mid-December 2010 at their highest levels since September 2008.

"Continued stock market gains will boost luxury car sales this year," according to Taylor. "Already strong sales of luxury vehicles have been assisted by stock market gains. Stock performance influences those who own significant amounts of stock outside of retirement programs, and who buy most of the new luxury vehicles."

5. RISING GASOLINE PRICES EXPAND VEHICLE SALES MIX

"While never good for the economy, higher gas prices increase consumer demand for small cars, hybrid vehicles and diesels," Taylor says. "New cars are more fuel efficient."

Many industry analysts are predicting that gasoline prices will exceed $3.50 a gallon in early 2011. In the summer of 2008, gasoline prices hit record levels of more than $4 a gallon.

Taylor says that higher gasoline prices will also increase demand for the more expensive hybrids that typically languish on dealer lots when gasoline prices are lower. Sales of diesel cars and trucks will increase as well, he says.

"In the first quarter of 2011 and beyond, new gasoline and diesel hybrid cars and light trucks entering the market will get a stronger look from consumers concerned by high gasoline prices," Taylor says.

"According to the NADA Used Car Guide, the value of small cars and hybrids during times of high fuel prices will increase in the used-vehicle market, and values for large vehicles in the light-truck segment, such as truck-based SUVs, will moderate," he says.

Auto sales were led by crossover utility vehicles (CUVs), which accounted for about 25 percent of total U.S. new-vehicle sales in 2010. CUV sales, which grew by about 24 percent last year, more than double the growth rate of overall new-car and -truck sales nationwide.

About NADA: The National Automobile Dealers Association, founded in 1917, represents about 16,000 new-car and truck dealers with about 34,700 franchises both domestic and international. For more information, visit www.NADA.org.

SOURCE National Automobile Dealers Association