Consumers Will Drive 2011 Sales to 12.9 Million
By Lacey Plache January 31, 2011Three C's - credit, confidence and cash - will be the primary factors driving car and truck sales to 12.9 million vehicles in 2011, Edmunds.com forecasts.
Improving availability of credit will lure recession-weary consumers, who increasingly not only want but need to replace their aging vehicles, to the showroom.
Barring economic shocks from abroad or soaring prices of commodities such as gas and food, the key factor holding back consumers is their cash position - the result of stubbornly high unemployment, stagnant incomes and a severely weakened housing market.
Credit Loosens
Improved credit conditions will have the largest impact on 2011 auto sales, potentially pushing them to a higher rate than forecasted.
The consumer's ability to borrow will improve, likely at a faster rate than of late if recent trends in credit availability continue and household debt-lowering holds steady. American households are expected to continue paying off debt at the rate they have been of late, putting them in a better position to borrow money for a vehicle purchase.
Consumers Motivated
Consumers will become increasingly confident and motivated to purchase new vehicles. Recession weariness combined with bolstered consumer confidence, buoyed by stock market gains, could combine to spur 2011 vehicle sales higher than predicted.
Consumer confidence has been enhanced by President Obama's recently announced tax plan that lay to rest uncertainty about tax increases, at least for now, allowing consumers to better plan for the next two years. That planning may well include the purchase of a new vehicle.
Pent-up demand is building, with scrappage rates outpacing new vehicle sales.
Cash Tempers Exuberance
Still, consumers will remain cautious, an aftermath of recession and the sluggish recovery. Many have shifted financial values, resulting in a personal austerity that is unlikely to abate.
The consumer's cash position is not expected to change much. Incomes remain stagnant; unemployment is staying stubbornly high; and the state of the housing market is not improving as weak prices, a high inventory of unsold homes and more foreclosures persist.
While President Obama's tax plan includes a 2-percent payroll tax cut, consumers are likely to save that money rather than spend it. Businesses aren't expected to spend either. Business investment is unlikely to increase substantially beyond the routine replacement and upgrades that have been occurring in recent months. As a result, employment will not grow much.
Indeed, consumer confidence is fragile. Gains could be reversed if the economic situation abroad worsens and the stock market falls in response. Soaring gas and/or food prices also could dampen consumer sentiment.
What Consumers Can Buy - And Will Pay
Two additional key factors affecting consumer will be new vehicle offerings available for them to buy and the prices they will pay.
A number of new models were introduced in late 2010 and more will be introduced in 2011. Restyled vehicles generally gain sales and market share, and many more are on the horizon, including high-volume models like the Honda Civic, Ford Focus, Ford Explorer and Chevrolet Cruze. In addition, this year's crop includes a variety of new alternative fuel vehicles and hybrids, such as the Nissan Leaf, Chevrolet Volt and more versions of the Toyota Prius including a plug-in model. With hybrid sales falling for three years in a row, the contribution of these models to overall vehicle sales is unlikely to move the needle much.
A spike in gasoline prices could prompt buyers to shift to smaller more fuel-efficient vehicles and alternative fuel vehicles. However, Edmunds.com's forecast does not anticipate substantially higher gas prices.
Vehicle prices, however, will rise. Average transaction prices have risen in the past year, and are likely to continue as new technologies are added to vehicles. Further, incentives have fallen and are likely to remain fairly stable if auto sales continue to increase. Automakers have vowed to remain disciplined in keeping inventories in line with demand to avoid hefty incentives and to produce higher per-vehicle profits.
The combination of higher vehicle prices and lower incentives will restrain overall vehicle sales from rising beyond projections.
Read the full analysis: Auto Sales Forecast 2011
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