New-car sales surge in early 2012

A combination of cheap financing, popular new models and rising consumer confidence is stoking pent-up demand and drawing customers back to the nation’s auto showrooms.

New-vehicle sales have surged at the start of 2012, outpacing forecasts and putting the nation’s automobile industry on track for its best year since 2007.

“The market feels really good right now,” said Vince Sheehy, president of Sheehy Auto Stores, which has 16 locations, half in the Washington area. “If the economic conditions remain the same, this is certainly sustainable. People are feeling better about things.”

With interest rates as low as two, three and four percent, and used cars and trucks demanding high resale prices, purchasing new vehicles is increasingly attractive.

The same factors are also elements in the best car-leasing deals in years, allowing that portion of the market to strongly recover from the lows hit during the depths of the recession.

The sharp increase in auto sales coupled with rising gas prices is causing a few spot shortages, particularly among fuel-efficient models. Dealers worry that the shortages could grow worse if the current sales pace continues through the year.

“We are starting to get a little tight on the lower-middle segment of the market,” Sheehy said. “Cars like the Ford Focus, Nissan Sentra, Honda Civic. Overall, inventories are okay, but they are getting a little tight.”

After unexpectedly strong sales in January and February, several auto-research firms raised their 2012 sales forecast. LMC Automotive now predicts that 14 million cars will be sold this year, the same prediction as TrueCar.com. Meanwhile, IHS Automotive and Kelley Blue Book have revised their forecasts upwards from 13.3 million to 13.6 million.

“I don’t think the industry was looking for the market to be this strong. It is outpacing expectations,” said Jeff Schuster, senior vice president of forecasting for LMC Automotive. “This is not incentive-driven. This is happening because the economy seems to be in a better place.”

The last time business was better was in 2007, when 16 million new vehicles were sold in the United States. The recession dragged down sales to 10.4 million in 2009, and they have since rebounded. Last year, the industry reported 12.7 million new-vehicle sales.

Sales have been moving far more briskly in the first two months of 2012, and they are now on a 15 million annual clip, though many analysts expect that pace to slow in the coming months.

“You had a lot of people holding off on car purchases over the past few years,” said Lacey Plache, chief economist for Edmunds.com. “The recovering economy is bringing more people back into the market. Also, credit is expanding, which is helping a variety of people who were not able to borrow before. The other factor is that people’s cars are getting older and older.”

Catherine Duso, 45, a federal contractor, bought a new Ford Explorer last weekend. She had been eyeing Fords for several years, but she decided to pull the trigger because she was feeling confident about her financial situation. A discount secured by a friend who works for Ford also helped.

“I just felt like the time was right,” she said. As for her new car, she said, “I love it, love it, love it.”

Auto analysts see the sales growth as another sign of an economy that is finally healing. Unemployment has dipped sharply in recent months, while consumer confidence is rising and stock market indicators such as the Dow Jones industrial average are bumping up against four-year highs.

“We look at all the macroeconomic indicators and try to correlate them with car sales,” said Jesse Toprak, vice president of market intelligence for TrueCar.com. “Performance of the Dow Jones industrial average remains the highest correlation we can find.”

Tammy Darvish, vice president of Darcars Automotive Group, noted that although sales are up sharply, they have a long way to go to match the decade before the recession, when automakers routinely sold 16 million to 17 million new units a year.

“We’re certainly seeing a surge in sales,” Darvish said. “But while sales are up, the question is up compared to what? The people who are around now are doing well because so much of the competition went out of business.”

The same applies to manufacturing plants. Much of the nation’s automaking capacity shut down during the crisis that gripped the industry last decade, which resulted in a federal bailout of General Motors and Chrysler. Now some researchers wonder whether automakers will be able to meet demand if it grows much more robust.

“The difference is we have many fewer production facilities than we did just a few years ago,” said Kristin Dziczek, director of the Labor and Industry Group at the Center for Automotive Research. Now with the recent sales surge, hiring has resumed, and “many plants are already on three shifts. I would not be surprised in a year or two that we hear about them turning on plants that have been idled.”

Michael A. Fletcher is a national economics correspondent, writing about unemployment, state and municipal debt, the evolving job market and the auto industry.
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