||Why Auto Sales Will Outpace the Economy
Automakers expect new-car sales to outperform the lousy overall economy in the coming months -- just as they did in a surprisingly strong September.
What's driving the fresh optimism among auto executives?
-- A flood of new and redesigned models.
-- Replenished Japanese supplies, signaling a production recovery from the March earthquake in Japan.
-- A belief that demand won't remain pent-up much longer.
All three factors were key to September's 10 percent sales increase. A surge in retail sales pushed the seasonally adjusted annual selling rate to 13.1 million light vehicles, the highest in five months.
"There is a lot of pent-up demand," said General Motors sales chief Don Johnson.
"Consumers are being cautious, but they are not out of the market. We think that will continue the rest of the year."
Auto executives say dramatic changes have occurred in the four months since vehicle shortages and troubling economic indicators derailed a budding auto recovery.
"Things are already changing -- and in a very big way," Toyota brand boss Bob Carter said last week. With resumed full production, larger dealership stocks and five new models this autumn, he pledged that September's 18 percent decline would be the last year-over-year loss this year for Toyota Motor Sales U.S.A.
"We expect to exceed year-ago sales levels beginning in October -- and we will continue to do so every month through the fourth quarter and beyond," he said.
The economic indicators normally linked with auto sales growth -- the unemployment rate, new-home starts, consumer confidence and financial market indices -- remain at or near several-year lows.
And analyst Itay Michaeli of Citi Financial warns that the number of vehicles per licensed driver may continue to decline since peaking at 1.18 in 2007, further dampening demand.
Despite the considerable headwinds, automakers still see improvement ahead.
For example, Jonathan Browning, CEO of Volkswagen Group of America, expects U.S. auto sales to end the year at 12.85 million, then rise to 13.5 million to 14 million in 2012.
Automakers say the U.S. car fleet is disintegrating, and with the average car in use more than 10 years old, many buyers can't defer purchases much longer.
In recent weeks, buyers' top three reasons for acquiring a new vehicle are: "'My lease is up,' 'My car is broken' or 'I have a new child,'" said Jesse Toprak, vice president of TrueCar.com, citing the dealer transaction data his firm collects.
"The tune has changed," he said. "Consumers have stopped saying, 'I'm going to wait until the economy settles' and started saying, 'I can't wait any longer, I'm going to buy anyhow.'"
Toyota distributor Toby Hynes thinks the number of vehicles per licensed driver will rebound.
"I don't believe the American consumer is done buying cars and trucks," said Hynes, Houston-based president of Gulf States Toyota, one of Toyota's two remaining U.S. distributors. "People drive a long way to work and a long way to see friends or relatives. They may drive less, but they still need cars and trucks."
Manufacturers also are rolling out lots of new products and cool new technology, driving demand. Toyota is launching three redesigns (the Camry, Tacoma and Yaris) and two new models (the Prius V and Scion iQ) by year end. Toyota also will expand its Entune multimedia system from three models to 10 by early 2012.
Ford, GM, VW, Honda and others also have major new and redesigned models.
And the Japanese are restocking, and running their Japanese plants at an accelerated pace to make up for lost production.
At Toyota Motor Sales, the days supply of vehicles on Oct. 1 rose to 39 days, from 34 a month earlier. At American Honda the figure was 33 days, up only slightly from 32 last month. But Honda said output of most models is almost back to normal.
Incentives also will play a greater role. As the Detroit 3 and Hyundai-Kia gain ground and fuel prices decline, the uneasy summer marketing cease-fire is ending. Industry average incentives inched up $101 in September to $2,716, said Toprak, who expects more targeted incentives in the months ahead.
GM's Johnson has said for months that Toyota and Honda rejoining the game would help all automakers by signaling to idle buyers that there are deals available. Last week Carter said Toyota not only would continue zero-percent financing on all 2011 models in October but it also would add "a tremendous amount" of advertising.
"You'll see us use both (incentives and advertising), but we will lead with our new product and marketing messages to let consumers know how much new product we're bringing to the market," he said.
Ford is increasing supplies of the Focus, Fusion and Fiesta to meet anticipated sales growth.
"We continue to see a restocking of inventories and increase in merchandising throughout the industry," said Erich Merkle, Ford sales analyst.
"Despite everything that's been thrown at us this year, auto sales continue to be one of the few economic bright spots," Carter said, adding that auto sales are back "on track to hit our initial forecast of 12.5 million vehicles -- and with a strong fourth-quarter push from Toyota, the industry should actually do a little better than that."
(Source: Automotive News, 10/10/11)
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