Auto sales surged again in March, delivering the best monthly performance in the last five years.
Light vehicle sales for March totaled 1.45 million, an increase of 3.4 percent over the year-ago tally, according to the Department of Commerce. Continued pent-up consumer demand, introduction of redesigned models, and low interest rates are spurring this growth in the industry.
“This is a good report and suggests that the consumers are in reasonably good financial health,” said Bill Cheney, chief economist at Manulife Asset Management. “They have money, willingness and creditworthiness to go ahead and keep buying cars.”
Many consumers who put off buying a car during the recession are now being forced to head to the dealerships because their cars are simply too old. The average age of a car on U.S. roads is at a record 11 years. However, consumer confidence and decreasing unemployment rate have been gradually turning around the auto industry.
Moreover, the Federal Reserve Board’s attempt to keep the short-term interest rates low has made easy financing possible. In the last few years, low interest rate on car loans has been providing the extra comfort to consumers to buy the vehicle of their choice.
“Extraordinarily low financing rates are helping to keep sales momentum going,” said Alec Gutierrez, a senior analyst at Kelley Blue Book. “A number of manufacturers are even offering 0% financing if you have top tier credit.”
In the last few months, the auto industry has fuelled consumer appetite by launching some highly anticipated redesigned car models such as the new Ford Fusion, Nissan Altima and Honda Accord.
“The new offerings are fuel efficient and come with more features than the previous generation they are replacing,” said Gutierrez. “This has also helped stimulate consumer demand and gets folks to go to the dealership.”
In the short term, stock market performance is another factor that has boosted consumer confidence, leading to increased vehicle sales. March has been an exceptionally good month for the stock market, with both Dow and S&P scaling near record highs.
“It seems that as long as stock market is doing well, car sales do well too,” said Jesse Toprak, a TrueCar.com analyst, who has tracked a very high correlation between new car sales and stock market indices such as the Dow Jones Industrial Average.
In March, most major automakers, especially the “Detroit Three” – Ford, General Motors and Chrysler did well. Ford’s sales were up 5.7 percent compared with a year ago. General Motors announced an increase of 6.4 percent over the same time period last year while Chrysler reported a 5 percent jump.
March’s seasonally adjusted annual rate of auto sales (SAAR) totaled to 15.2 million, marking a 8% increase over the 14.1 million in March 2012, according to the Commerce Department. Automobile SAAR sales have been above 15 million since November last year but the growth has slowed down.
“It (vehicle sales) is certainly encouraging and a good sign,” said Scott Brown, chief economist at Raymond James. “But it’s consistent with the view that this is going to be a very gradual recovery.”