September 4, 2013

In a cool economy, auto sales on fire

The Associated Press

For the U.S. auto industry, the recession is now clearly in the rear-view mirror.

click image to enlarge

In this Aug. 13, 2013 file photo, Scott Garberding, senior vice president of manufacturing for Chrysler Group LLC stands between a 1992 Grand Cherokee, right, and the automaker's 5,000,000th vehicle produced at the Jefferson North Assembly Plant in Detroit. Chrysler's U.S. sales rose 12 percent in August as strong truck sales pushed the company to its best month in six years. (AP Photo/Carlos Osorio, File)

New car sales jumped 17 percent to 1.5 million in August, their highest level in more than six years. Toyota, Ford, Nissan, Honda, Chrysler and General Motors all posted double-digit gains over last August.

The full-year sales pace rose above 16 million for the first time since November 2007, the month before the Great Recession officially started. Exuberant automakers said sales will likely remain at that pace for the rest of this year.

"I think it's here to stay," said Mustafa Mohatarem, GM's chief economist.

U.S. car and truck sales totaled 16 million in 2007, then plummeted during the recession. They bottomed out at 10.4 million in 2009 and have been rising ever since. In August, they seemed to pick up speed. Mohatarem said he expects the year to end with sales closer to 15.8 million vehicles, which is higher than GM's official forecast of 15.5 million.

August's strong sales surprised analysts. Alec Gutierrez, an analyst with Kelley Blue Book, said sales unexpectedly spiked over Labor Day weekend after car companies unleashed a flurry of ads.

But even with the holiday marketing push, the trend still points to higher sales. More people are working as the economy improves, and they need cars to commute to their jobs. The cars on U.S. roads have reached a record 11.4 years old and need to be replaced. And low interest rates — now at 2.5 percent for a four-year car loan, according to Bankrate.com — are attracting buyers.

A lot of things have changed since 2007. In May of that year, the last time monthly sales topped 1.5 million, sales of small cars boomed as the nationwide average for gas topped $3 a gallon for the first time.

Back then, Inder Dosanjh, who owns Chevrolet, Volkswagen, Chrysler and Kia dealerships around the San Francisco Bay area, had fewer vehicles to sell, since U.S. automakers weren't making competitive small cars. But last month, all of his dealerships saw 30 to 40 percent gains. His Chevrolet lineup now includes the Volt plug-in hybrid, Cruze compact, Sonic subcompact and Spark mini-car.

"We don't have enough Sparks in stock," he said.

Drivers have also learned to live with higher gas prices. Gas this August was the cheapest in three years, averaging $3.57 a gallon, compared with $3.69 last year. Toyota was even discounting the Prius gas-electric hybrid last month to woo buyers who are no longer so concerned about gas prices. The average Prius incentive was $1,462, more than triple the incentives from a year ago, according to TrueCar.com, an auto pricing website. The incentives worked. Prius sales were up almost 30 percent.

The market looks different in other ways. In 2007, pickup trucks made up 53 percent of U.S. sales. That fell to 47 percent in 2009, when construction ground to a halt. Now, truck sales are making a big comeback as contractors and other small businesses get back to work. From January through August, they made up 49 percent of total sales. Ford sold more than 70,000 F-Series pickups last month, the second month this year that sales have topped 70,000 for the nation's top-selling vehicle.

People are paying far more for their cars than they did in 2007. Kelley Blue Book estimates the average price for a new car or truck in August was a near-record $31,657, up from $28,500 in 2007.

(Continued on page 2)

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