July Auto Sales Expected to be Strong

July 31, 2012

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Despite signs of economic uncertainty, including lackluster consumer spending and a weakened labor market, U.S. auto sales are projected to be strong in July, boosting business activity in the automotive sector.

Although gross domestic product growth slowed in the most recent quarter, largely due to weakened consumer confidence, and many consumers are focused on saving rather than spending, auto sales in the United States and North America as a whole are expected to improve on a year-over-year basis in July.

Automotive research firm J.D. Power and Associates forecasts that new vehicle retail sales in North America will reach 969,200 units in July, representing a seasonally adjusted annualized rate (SAAR) of 11.5 million units. This would mark a 15.1 percent increase over sales in July 2011 and a gain of approximately 2 million units in the year-over-year annualized selling rate, indicating continued strength in consumer demand for new vehicles.

While this month’s figures show a moderate decrease from total sales in June, when roughly 1 million units were sold and the SAAR reached 12.2 million, projected sales are still within a healthy range. Experts attribute much of the performance to improvements in long-term financing, with favorable loan terms and greater credit availability bringing many consumers back into the market since being shut out by the recession in 2008.

“For the first half of the year, sales of cars and trucks ran at an annual rate of 14.3 million, the best pace in 5 years. Car buyers bought everything from compacts to big pickups, making the auto industry a bright spot in the economy,” the Associated Press reports. “The only hiccup came in May, when sales slipped to a 13.8 million annual rate as the stock market plunged. Buyers returned in June to drive sales back up to a 14.1 million rate.”

In terms of light-vehicle sales, July is traditionally a slow month, averaging just 15 percent of total light-vehicle sales during the past five years. Light-vehicle sales for July 2012 are expected to remain low at 17 percent, but still higher than the historical average.

Automotive production has also been strong. Through the first half of 2012, North American light-vehicle production volume increased 22 percent over the same period last year, thanks to particularly high demand in the first quarter. In the U.S. alone, car manufacturing posted a 26 percent year-over-year increase for the first six months of 2012.

“Increases in North American production volume remain a bright spot in the automotive industry this year, as volume teeters at 15 million units and is at the highest level since 2007," Jeff Schuster, senior vice president of forecasting at LMC Automotive, noted. “Much like demand, there remains some risk of a cooling as the year progresses, but inventory is being well managed.”

North American automotive production is projected to reach 14.9 million vehicles in 2012, a 14 percent increase from the 13.1 million units assembled in 2011. In 2013, vehicle production is forecast to climb to 15.3 million units.

Automotive data analysis firm Edmunds.com also recently offered promising projections. Combined retail and fleet vehicle sales are forecast to total 1.17 million units and reach an SAAR of 14 million in July, down slightly from June’s 1.29 million units sold and SAAR of 14.1 million.

Chrysler Group LLC’s sales are expected to rise 9.2 percent, while Ford Motor Co.’s sales are forecast to decline 2.5 percent and General Motors Co. to drop by 0.3 percent. In terms of retail market share, Asian automakers are expected to post the best performance this month, led by Nissan with 15 percent growth, Honda with 5 percent growth and Toyota with 4 percent growth. Chrysler’s share is expected to decline by 4 percent for the month, GM’s by 3 percent and Ford’s by 1 percent.

Despite the relatively positive outlook for the automotive industry, there are numerous risks that could hurt business activity, such as a weakened labor market and a general economic slowdown, which are both causing severe concerns among consumers.

“[R]ising uncertainty about the upcoming elections, concern over the impending ‘Fiscal Cliff’ and fear of contagion from the worsening economic situations in Europe and in China would deter at least some consumers from buying new cars. These factors have indeed emerged. Plus, numerous metrics indicate that the U.S. economy could be slowing as well,” Lacey Plache, chief economist for Edmunds.com, explains in a commentary. “While the outlook seems shaky for July car sales, expanding credit, an aging fleet and appealing new models should continue to draw out pent-up demand and provide support for auto sales this month.”

 

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