The industry's string of strong sales reports that surprised many prognosticators this year is no fluke. And it's not likely to end soon because several factors have raised the trend line for U.S. auto sales.
New light-vehicle sales will remain above 16 million units a year because of a dramatic increase in household wealth, growth in consumer leasing, sustained discounts in new-vehicle prices and historic low interest rates, some industry experts now say.
U.S. sales have not collapsed this year, even though experts had predicted a payback in the first quarter to offset strong sales in the fourth quarter that were stoked by 0 percent financing incentives.
"Zero percent created some incredibly low prices," said Bob Schnorbus, chief economist for consulting firm J.D. Power and Associates in Westlake Village, Calif. "But I thought it would be enough to keep the ship afloat, not raise the market to new records."
Strong sales in the final three months of the year pushed the total for 2001 to 17.2 million units, just missing the record of 17.4 million sales set one year earlier.
Many economists expected sales to nosedive when the economy faltered because that's what happened in the last recession. Sales went from 15.5 million units in 1988 to 14.5 million in 1989, 13.9 million in 1990 and 12.3 million in 1991 before turning back up.
Although the underlying economic factors have been building steadily, it wasn't until new-vehicle sales should have collapsed but didn't that the new trend was apparent.
When that happened, analysts rethought their light-vehicle sales forecasts.
For example, in December, John Casesa of Merrill Lynch projected 2002 year sales at 14.6 million. Since then, Casesa has raised his estimate in gradual steps to 16.5 million for 2002 and 16.8 million for 2003. He cites consumer confidence and incentives as the reasons. "Those are the two biggies," Casesa said last week.
Automakers have raised their forecasts, too. Both General Motors and Ford Motor Co. expect 16.2 million light-vehicle sales this year.
"We started the year in January at around 15.5 million; today we're at 16.5 million," Nick Scheele, Ford Motor Co. COO, told Wall Street analysts May 15. Both forecasts include about 300,000 medium- and heavy-duty units.
That same day, Jim O'Connor, Ford Motor group vice president for marketing, sales and service, told analysts that the forecast could go higher. "Interest rates are low; consumer confidence is going up," he said.
An important factor in establishing the new sales trend line has been the recent growth in consumer leasing. Although many automakers cut back on lease incentives last year, vehicles leased in prior years need to be replaced.