NADA's Top 5 Reason for 12.9 Million Car Sales in 2011

U.S. new-car and light-truck sales will register double-digit percentage gains in 2011, says Paul Taylor, chief economist of the National Automobile Dealers Assn. Auto sales are playing a key role in leading the economic recovery, he says. With the average age of cars and trucks on the road today at more than 10-years-old, Taylor says Americans will need to replace their aging vehicles. He predicts

U.S. new-car and light-truck sales will register double-digit percentage gains in 2011, says Paul Taylor, chief economist of the National Automobile Dealers Assn.

“Auto sales are playing a key role in leading the economic recovery,” he says.

With the average age of cars and trucks on the road today at more than 10-years-old, Taylor says Americans will need to replace their aging vehicles.

He predicts light-vehicle sales this year will reach 12.9 million units compared with 11.5 million in 2010. Here are his top five reasons for the upbeat forecast:

  1. More model choices.

    Auto makers are producing a wide variety of new cars and trucks that are headed to dealer showrooms.

    The debut of nearly 40 cars and trucks at the Detroit auto “is a strong indicator that the auto industry is making a comeback,” says Taylor.

  2. Available credit at low rates.

    The Federal Reserve Board indicates the performance of the economy is “likely to warrant exceptionally low levels for the federal funds rate for an extended period,” which means auto lenders will be able to offer attractive financing rates, Taylor says.

  3. Tax-rate certainty.

    The extension of so-called Bush tax cuts by Congress, combined with the budget extension to fund the government, will provide at least a two-year horizon for business investment and consumer planning that should bolster economic growth, Taylor says.

  4. Stock market and luxury-car sales.

    “Continued stock-market gains will boost luxury car sales this year,” he says. “Stock performance influences those who own significant amounts of stock outside of retirement programs and who buy most of the new luxury vehicles.”

  5. Rising fuel prices.

    “While never good for the economy, higher gas prices increase consumer demand for small cars, hybrid vehicles and diesels,” Taylor says. “New cars are more fuel efficient.”

Many industry analysts are predicting that gasoline prices will exceed $3.50 a gallon in early 2011. In the summer of 2008, prices hit record levels of more than $4 a gallon.

Taylor foresees higher gasoline prices also will increase demand for the more expensive hybrids that typically languish on dealer lots when gasoline prices are lower. Sales of diesel cars and trucks will increase as well, he says.

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