US auto sales surge as leasing deals remain cheaper than used cars

Consumer demand

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US autos Sept13

US auto sales showed continued progress in August.  As the chart shows, August volume at 1.5m (red square) was a new record for the month, and 17% above 2012 levels (green line).  In turn, of course, this was excellent news for chemical manufacturers, as the American Chemistry Council calculate each new car is worth $3539 to the industry.

Yet the demographic profile of these new car buyers gives pause for thought:

  • Buyers in the New Old 55+ generation accounted for 40% of new car sales in 2012, versus 33% in 2008
  • Younger buyers aged 18 – 34 bought only 12% – a lower percentage even than the 14% seen in 2008

This is further support for the analysis that new car sales are not quite as buoyant as they appear at first sight:

  • The real driver is the low supply of used cars from the 2009/10 period, when sales were in the 10.4m – 11.6m range
  • The laws of supply/demand have therefore pushed up their prices relative to earlier years
  • Yet cheap leasing deals mean that new car buyers are paying only $200/month for mid-size sedans, and $400/month for luxury cars
  • This makes new cars relatively very attractive, particularly for New Old buyers who can’t afford today’s record average new car price of $31.25k

But interest rates on 10-year Treasury bonds have nearly doubled to 3% since May, so there must be some doubts about whether these finance deals can be maintained.  And latest producer price data showed the average dealer purchase price dropped by 1.1% in July, the biggest fall for 4 years.

Adding to the question marks is data on tyre sales.  These were flat in 2012 at 284m versus 2011, despite the increase in new car sales.  The reason was simple, that affordability issues mean 1 in 8 Americans are now driving with at least 1 bald tyre, according to the Rubber Manufacturers Association.

Thus Mark Yost warned in ICIS news recently:

“There is a growing concern among automakers and petrochemical makers that the pent-up demand driving US car sales to levels not seen since 2007 is eventually going to wane…. ”We know that this demand isn’t going to stay this high forever,” one petrochemical source said. “In fact, we’re not even sure it’s going to last through the end of the year.”  Indeed, automakers and petrochemical firms are worried that when this pent-up demand from the 2009 recession runs out, the market will not gradually slow down. Instead, it will plummet.”

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