What's behind the rebound in auto sales?

July new-vehicle purchases were the strongest since before the recession. Analysts believe growing consumer confidence has been key.

By Bruce Kennedy Aug 6, 2013 7:20AM

Image: Couple shopping for car (© Image100/Jupiterimages)It appears that strong demand in the automotive sector is the tow truck the U.S. economy needed to help pull itself out of the financial doldrums.

New-car sales for July were approaching levels last seen in the prerecession heyday of 2007, The Wall Street Journal reported last Thursday. General Motors (GM) reported a 16% increase for the month from July 2012, while Ford (F) and Chrysler each reported 11% gains. Toyota (TM) sales rose 17.3% for the month.

Those numbers were pretty close to what industry analysts had been expecting, and they pointed to several factors sparking that growth, including easier access to credit and a strong interest in small and hybrid cars as consumers look to keep gasoline bills down.

Just as important, however, appears to be growing consumer confidence in the slowly recovering economy, seen in the skyrocketing demand for pickup trucks for the reviving housing market and the broader construction sector.

Consumer confidence "maintained elevated levels as evidenced by strong retail sales," Bill Fay, a group vice president for Toyota, told The Detroit Bureau, an automotive industry website.

"Overall sales are undoubtedly strong, but what makes July truly impressive is that fleet sales are so low," Jessica Caldwell, senior analyst for Edmunds.com, predicted before the July numbers were released.

"That means retail sales are stepping up as the driving force for the auto industry," she added. "When people jump back into the market, it's great news not just for the automotive sector, but for the entire U.S. economy."

A lot of pent-up consumer demand seem to be letting loose, as cost-conscious Americans decide to trade in that car they held on to for a few extra years during the economic downturn.

The auto industry is trying its best to make it easy for consumers to buy those new models now. "Incentives are up almost 8% in July as the summer sell-down season begins," Kristen Andersson, an analyst for TrueCar.com, said in a statement. "Hyundai (HYMLF)/Kia is aiming to stay competitive by increasing incentives to their highest levels in almost three years."

July is considered a crucial month by many automakers, Ludwig Willisch, CEO of BMW of North America, told The Detroit Bureau, due to its importance in "setting the trend for the second half of the year and the numbers show the trend is with us." BMW (DE:BMW) gained 10.5% for July.

If people aren't afraid to make those initial down payments on a new car, then perhaps the economy is truly improving.

"Stability is really the story," TrueCar.com analyst Jesse Toprak told Reuters. "I know it doesn't make a great headline."

More on moneyNOW

Aug 6, 2013 10:27AM
Yeah, this isn't adding up, especially when industry insiders are expecting the average age of cars to continue to increase over the next 5 years.

The only explanation would be that there are just a whole lot more operable vehicles in existence.  I just don't see that happening.  I'm not seeing local small businesses expanding their fleets or even replacing very many service trucks in their fleets.  I'm also not seeing families increase the number of cars they own.  Even the increases in the population aren't enough to account for this disparity.  If anything, the boomers are slowly going to be getting rid of their cars, or downsizing from 3 cars to 2, or from 2 to 1.

Aug 6, 2013 9:24AM

Sooo...in another story it is said the average age of a car has INCREASED to 11.4 years old. I feel we are being given conflicting information.


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