June Sales Soar Despite Economic Storm Clouds

- Alec Gutierrez, senior market analyst of automotive insights for Kelley Blue Book

Although it’s possible that the pace of auto sales will begin to level off in coming months, June gave no indications of a sales slowdown anytime soon. With General Motors (GM), Ford, Chrysler, Toyota and Nissan reporting results so far, sales are up more than 22 percent year-over-year, outpacing our forecast for a 20 percent gain. 

Further aiding sales was a decline in average transaction prices paid by consumers relative to one year ago. Kelley Blue Book found that consumers paid approximately $500 less on average for a new vehicle this year versus June of last year, and we expect transaction prices to remain below figures from a year ago through the summer. With lower transaction prices, low interest rates, ample inventory, availability of incentives and available credit to even those with less than perfect credit; Kelley Blue Book expects sales will hit 14.2 million units in 2012, an 11 percent increase over 2011. 

With the state of the economic recovery still in question, we remain conservative in our outlook for 2013 at this point. While we don’t expect to see sales drop in 2013, we may only see a 3-5 percent increase, well below the annual recovery pace established since sales bottomed in 2009. 

With consumer confidence on the decline, unemployment on the rise and a downward revision of the Federal Reserve’s GDP growth outlook in June, consumers have largely ignored news of a slowing economy and have opted to purchase new vehicles when necessary.  With the average age of vehicles on the road today now approaching 11 years according to Polk, we expect ample demand from consumers in need of a replacement vehicle. 

“If a family in Iowa’s only mode of transportation is on the fritz, they are going to buy a replacement vehicle, even if Spain’s economy is on the brink of collapse,” said Alec Gutierrez, senior market analyst, automotive insights, Kelley Blue Book. “At the end of the day, most people rely on their vehicle to get to work, drive the kids to school, run errands, etc.”

Small Car Sales Slow and SUV Sales Surge Due to Drop in Fuel Prices

GM reported a sales increase of 16 percent year-over-year, largely on the strength of the Malibu and Equinox which improved 32 and 16 percent respectively.  The Malibu was aided by strong incentives on the model-year 2012 variant as GM makes way for the 2013 redesign while the Equinox benefitted from falling gas prices and a jump in interest for compact utility vehicles. The Cruze dropped 23.8 percent year-over-year, again, likely due to falling gas prices. 

Ford improved 7 percent year-over-year thanks in large part to a 25 percent surge in sales of utility vehicles. As gas prices have eased, consumers are clearly opting for utility vehicles and Ford has benefitted tremendously. Escape sales were up 28 percent year-over-year while the Flex and Explorer each improved 34 percent. Focus sales were down a modest 1 percent versus last year while sales of the Fiesta dropped a more significant 17 percent. 

Chrysler, which hit a 20 percent sales gain for the 27^th consecutive month, saw a 51 percent increase in sales of the 200, with strong incentive support. The 200 was available in June with $3,000 in cash rebates and/or 0 percent financing. The Dodge Dart also arrived at dealerships late in the month, although sales will likely remain tepid in the short term with gas prices continuing to fall after dropping more than $0.50 since April. Chrysler’s Jeep brand improved 23 percent overall. Wrangler, Grand Cherokee and Liberty were up 28, 39, and 50 percent respectively.

The Auto Industry Continues to Support a Struggling Economy

The auto industry is one of the most significant drivers of economic growth, contributing significantly to both consumer spending and manufacturing. Although conditions in the economy continue to decay, the auto industry has remained one of the few bright spots in an otherwise bleak outlook. GM, Ford, and Chrysler all have played a pivotal role in the industry’s turnaround by offering vehicles in every category that consumers actually want to buy. In June, manufacturing in the U.S. dropped for the first time in three years, yet the auto industry has been able to increase production to meet demand. By continuing to offer better, more efficient vehicles, the auto industry has done its part to help sustain the growth of the US economy.