U.S. auto sales surged by 27 percent in February, as a hike in oil prices sent consumers shopping for more efficient vehicles. With an annualized sales rate of 12.9 million vehicles, the month was one of industry’s strongest in the past year, and exceeded the predictions of most analysts.
The recent spike in oil prices, caused by ongoing civil unrest in the Middle East and North Africa, has translated to higher costs at the gas pumps. That’s bad news for the economy but, at least for the moment, a boon for the auto industry. Since newer cars are generally more fuel-efficient, they become a hot item when gas prices rise.
The formerly embattled manufacturer General Motors led the pack in February growth, with its own sales up more than 40 percent over last year. Toyota followed close behind, while Ford and Chrysler experienced less dramatic spikes but still enjoyed an increase over last year’s sales.
In a sign of the recovery, the February numbers also suggest that the United States is regaining its dominance in the global auto market. U.S. sales comprised 45.7 percent of worldwide auto sales this past year, up from 44.9 percent in 2009, said Ward McCarthy, Chief Financial Economist at Jefferies & Company.
A jump in consumer confidence was also a likely factor in the month’s strong sales. Consumer confidence rose to its highest level in three years in February, and that number tends to pull sales along. And while gains in previous months had been skewed towards small trucks, presumably due to purchases by companies and contractors, in February the sales were skewed toward small cars, a sign that consumers have returned to the market.
And their shopping mood is bound to last, since a glut of old cars will soon need to be replaced.
“We’re going to be in an up cycle for a long time because the fleet is very old,” said Brett Ryan of Deutsche Bank. Consumers have had to make do with their old cars for long enough; many of those won’t last much longer.
Of course, the auto industry may be slapped by the hand that now feeds it if oil prices continue to rise. If gas becomes prohibitively expensive, consumers may look to avoid driving altogether.
And while this month’s figures are an encouraging sign for the auto industry, they must be measured within context. Since last year’s sales were utterly dismal, percentage increases this year are bound to seem more impressive than they are. Even given this month’s uptick, which analysts predict will hold strong in coming months, projections for the year are far below what sales hit in the peak of the last cycle, when annual sales were around 16.5 million
“We’re only expecting 13.6 this year, and that highlights how far we’ve come down,” said Ryan. “Really, auto sales fell off a cliff.”
But Hugh Johnson sees this month’s auto sales as a harbinger of only more good news for the economy.
“These numbers tell you a lot about the resilience of the consumer,” Johnson said. “We’d been counting the consumer out, but it looks like consumer spending is really strong. The consumer has not backed away.”