ORLANDO, FL – Rising home values and low interest rates are among reasons the auto industry will do well in 2013, says Paul Taylor, chief economist for the National Automobile Dealers Assn.
Housing prices plummeted in the recent recession but increased 4% last year compared with 2011.
“That’s not tremendous, but it is giving confidence to households,” Taylor says at the annual NADA convention here.
“Home equity is the nest egg of most middle-class American households, and when that goes up people feel safer about buying a car,” he tells WardsAuto.
Taylor predicts U.S. new-vehicle sales of more than 15.4 million units this year, a million more than 2012.
“The economy continues to make modest but positive progress in overall growth,” he says, forecasting gross-domestic-product gains of 2.3% in early 2013 and 3% later in the year.
Taylor cites other positive factors combining to support strong auto sales this year:
- Attractive credit. Although they are expected to increase within two years, interest rates currently are low. “Available credit is very favorable for car sales,” Taylor says.
- In contrast to the recession when credit tightened like a garrote, auto fiancing has become more accessible to a wider range of consumers. “It’s not just available for people with perfect credit scores, but also for those who’ve had some bumps in the road.”
- Pent-up demand. Consumers will continue to replace aging vehicles. The average light vehicle on the road is 10.8 years old.
- More vehicle choices. Auto makers are introducing new models featuring design appeal and fuel efficiency, Taylor says. Moreover, “inventories are at proper levels for all brands and models. That’s important.”
- Jobs. Declines in the unemployment rate are modest “and not at a level we expect for a strong economy,” he says. But employment rates have improved enough to foster consumer confidence and allay layoff fears.
- Strong used-car values. The continued short supply of used vehicles will encourage many consumers to purchase a new vehicle this year, Taylor says. High used-car prices also “help new-car sales by providing trade-in equity.”
- Consumer confidence. Although the index measuring confidence fell from 71.5 in November to 65.1 in December, that remains above “the levels of when people stop buying cars.”
Dealers saw average net profits drop from 2.5% to 2.4% between January and November 2012 compared with prior-year.
But overall, dealers not surprisingly are in better shape today, Taylor says. “Dealers are supposed to make money when the economy improves.”