Edmunds Sees 2012 Car Sales Near 13.5 MillionBy Lacey Plache October 26, 2011
Edmunds.com expects auto sales in the mid-13 millions next year, building on 2011 momentum and benefiting from a steady release of pent-up demand. Supply will continue to expand as automakers restock their inventories after this years shortages. All-new top-selling models will provide extra motivation for buyers to return to market. Loosening credit standards and low interest rates will further facilitate sales. Other buyers will return due to aging vehicles or recession weariness causing an urge to spend. But, the slow pace of the economic recovery will keep sales growth at a moderate pace. Downside risk also remains, given threats of a Chinese slowdown and contagion from the European debt crisis. Should these or other negative events shake the marketplace, vehicle sales momentum could weaken.
Pent-Up Demand Awaits Release
Edmunds.coms projection of approximately 13.5 million sales next year is driven by the continued release of pent-up demand from buyers who have delayed new vehicle purchases since the recession. Several million such buyers likely exist, some of whom came back to the market in early 2011. More have appeared recently as supply and prices recovered from the disruptions caused by the Japanese earthquake. With annual sales still far below pre-recession levels, theres plenty of indication that pent-up demand is far from spent. Improved selection, loosening credit conditions and growing consumer motivation to buy are all factors that should drive sales and cause pent-up demand to further release in 2012.
Why Consumers Will Buy
New vehicle supply has been a key influence on auto sales in 2011 and will continue to affect sales in 2012. September and October sales this year received a boost from expanding supply, especially as Toyota and Honda finally recovered to normal levels of inventory. Other automakers have increased production as well and several have announced plans for higher than normal production in coming months to replenish inventories and expand sales. As a result, consumers will find a better selection of the smaller, more fuel efficient vehicles that the Japanese earthquake and high gas prices most affected earlier this year.
All-new versions of several top-selling models also will be available in 2012. In the midsize segment, Toyota already introduced the redesigned 2012 Toyota Camry in September. General Motors has scheduled release of the 2013 Chevy Malibu for early 2012, rumored to be followed by an all-new Ford Fusion later in the year. These vehicles accounted for 40 percent of midsize car sales and 6 percent of industry sales pre-earthquake. All-new vehicles usually increase sales and market share, and will likely attract consumers who have been waiting for better conditions to make a purchase.
Another factor that will ease the release of pent-up demand is loosening credit conditions. Experian data confirms the growing renewal of sub-prime lending, which increased to 41 percent of all auto loans in the second quarter of 2011 from a recession-low of 34 percent in the third quarter of 2009. As a result, average credit scores on new auto loans have fallen steadily since the first quarter of 2010.
Next years sales will further benefit from consumers returning to the new vehicle market after delaying car purchases during the recession and recovery. Some consumers will need to replace aging vehicles; the average age of the current fleet reached 10.7 years in 2011, up from 9.8 years in 2007. Other consumers will buy new vehicles due to an urge to spend in the face of recession weariness. Indeed, the personal savings rate, which had increased sharply since 2007, has declined in recent months to the benefit of retail sales, including autos. Since pent-up demand likely amounts to at least several million units, the potential for its release to boost new vehicle sales is high.
Economy Still A Drag
Negative economic news during the past few months has proven to be a difficult hurdle for auto sales momentum. Many economists have increased their odds of another recession and the weakness of recent economic data offers little hope for a strengthening recovery any time soon. This weeks consumer confidence reading showed particularly increased pessimism, with both current and future assessments of economic conditions falling sharply.
In fact, economic conditions kept many buyers out of the market in August, when supply first started to replenish after the Japanese earthquake. While buyers showed up in greater numbers in September and October, sales in these months were still lower than analysts had previously predicted, again due to the soft economy. As a result, less than 50,000 sales have been recovered from the several hundred thousand that potentially went unsold from May to August.
On the positive side, unexpectedly lower sales this year mean more deferred demand releasing in the coming year. And, while the odds of a double dip may have increased, forecasts still generally call for GDP growth in 2012 in the range of 1.5 to 2.0 percent, which is higher than annualized GDP growth during the first two quarters of 2011. In particular, GDP growth of just 0.4 percent in the first quarter of 2011 did not prevent strong auto sales growth during those months. Likewise, low consumer confidence has not prevented the release of at least some pent-up demand during the past couple months.
Downside Risk Remains
As the events of 2011 proved, the current recovery pace is not only slow, but it can also be easily disrupted. One factor to watch going into 2012 is the European debt crisis. At a minimum, a weaker Europe has lower demand for U.S. exports, which affects the U.S. recovery. Lower demand from any of Americas key trading partners poses a similar threat. China, in particular, has shown signs of an upcoming slowdown. Finally, depending on the extent to which the debt crisis spreads through Europe, the U.S. economy could be affected more seriously through contagion to its own financial system. While this scenario is less likely, it still poses an outside risk to 2012 vehicle sales.