Suddenly, the automotive sector seems to have come back to life, as sales are higher than they have been in more two years. While this is good for auto producers and the many domestic companies supplying them with materials and parts, theories are split regarding whether it is a more long-term trend or merely a fleeting surge.
Those predicting hot automotive activity, the kind that helped carry U.S. manufacturing throughout parts of 2013 and early 2014, continue to reference the fact that the America car fleet is still pretty elderly by most accounts—the vast majority owning current vehicles for more than 10 years. This creates some consistent demand even though the average car can last far longer than was the case in past years. Another long-term motivator is the ongoing willingness of banks to lend widely for car sales. Banks have gotten interested in mortgages again, but there remains a desire to add car loans and similar activities.
The oft-cited arguments that the auto activity surge will be short-lived counter that most buyers rely on tax return money for downpayments and that more interest exists simply from people getting out of their houses more following the end of winter weather. This winter was brutal in a lot of ways. There were many parts of the country that got far more snow and ice than usual and when there is that kind of weather in a place that doesn’t usually deal with it—there are lots and lots of wrecks. To that point, it is often forgotten that roughly 35% of all car sales are out of necessity (i.e., a replacement) as opposed to simple desire.
Car dealers in such cities have been reporting a spike in activity motivated by need. However, there is concern if not assumption that, once the post-winter rush ends, some of the demand will ebb.
- Chris Kuehl, Ph.D., NACM economist and co-founder of Armada Corporate Intelligence