Retail auto sales are going up

Retail auto sales are gaining in a weak economy. We asked our Zintro experts to tell us what is behind the growing sales of autos in the US.

Todd McMyn, an expert in manufacturing and specialized consumer products for the auto industry, says that the reason car sales are rising is because most people have put off buying a car for a long time. “As older cars come in for higher repair costs on transmissions and engine repairs, it becomes a no brainer to consider the economics of lowering re-sale value and car road life left after a major repair,” he says. “If repairs cost are $1,000 to $3,000.00 on a low lease/finance rate, the thinking is that it could turn into six months of driving a new car with no worries of future repairs. Hyundai announced an all-time record April sales of 61,754 units, up 40 percent compared with the same record-breaking period last year. It is offering the most competitive lease/finance rates; hence, the budget conscious consumers are gravitating toward this company instead of others that remain on the high side for price/finance ratios.”

David Goldschmidt, an expert in automotive incentives and marketing, says that US retail auto sales have gained in 2011 and are on track to top 12.5 million units this year. He explains that there are several reasons behind this shift:

  • Pent up demand – Vehicles don’t last forever. As they wear out, cars require more costly maintenance. At some point, it makes more sense to replace with a younger model. While the poor economy may have deferred some of these replacements, repair or replacement decisions cannot be put off indefinitely and therefore many buyers are unable to remain on the sidelines.
  • Good product – There are many new, competitive models available today. Many of these are models with good fuel economy as opposed to thirsty trucks or sports cars. In addition, several come from Ford, GM and Chrysler, which offer competitive products in several segments, stimulating buyers who may have waited for competitive domestic entries.
  • Low interest rates – Historically low interest rates produce relatively affordable monthly payments, the primary budget metric to determine the viability of buying a new car. These low rates reduce the cost of both loans and leases.
  • High used car prices – There has been a shortage of used vehicles, so used car values, especially for small, fuel efficient models, are at a high. When this occurs, the gap between a used car and an inexpensive new model narrows, causing more buyers to choose new, getting the benefit of a warranty, a lower interest rate than a used car, less expensive maintenance, and so on.
  • Marketing and incentivesAuto company marketing and promotion budgets are huge, with automakers battling intensely for market share. Immediately after the Japan earthquake and tsunami, domestic automakers went to battle and achieved significant market share gains while Japanese brand inventories were light and plants were being restarted. Now that supply chains are refilled, Japanese brands have increased incentives to win back lost share. At the same time, the domestic brands have increased their incentives to defend hard-won market share gains earlier in the year.
  • Good selection – When inventory is tight and selection poor, some buyers choose to wait until more cars are available to get the exact color or equipment they desire. With few exceptions, both foreign and domestic manufacturers now sport full selections at dealerships, taking away another reason to hold off on a purchase.
  • Fuel prices – Since January 2009, gas prices have trended up, reaching new highs in early 2011. Since prices are higher now than when consumers purchased their last vehicle, some shoppers are looking to replace their existing vehicle with a new, more fuel efficient model. Even the moderation of prices since earlier this year has benefited sales of SUVs, trucks and other less fuel efficient models.

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