Thursday, November 11, 2010

Light-Vehicle Sales: Population-Adjusted Sales and Auto Finance Rates

In order to bring some additional clarity to the light-vehicle sales numbers posted by the BEA every month, I decided to adjust the numbers to present the number of units sold for every thousand people. Additionally, new auto finance rates are presented below, with data coming from the FRB's G19 report. I believe this presentation does a better job of presenting how depressed auto sales became during the latest recession. I've previously said that I expect a strong medium-term bounce-back in auto sales as demand builds up.

SAAR of sales per 1000 people

Auto finance rates
I consider tailwinds for sales to include:
  • Reduced sales over the last two years - I expect people to eventually replace vehicles they kept for longer because of economic conditions. Sales are still very low, even assuming a twelve year replacement period.
  • Historically low finance rates - Lower rates mean more purchasing capacity for the same monthly payment or a lower payment for the same principal. I add that a friend that works in a Toyota dealership has commented to me more than once that demand is not an issue for them as much as access to financing is. If that is true, a pickup in willingness to finance would fuel an increasei n sales
Headwinds include:
  • High rate of unemployment - No Job, no loan
  • Increasing quality means vehicles last longer - 10yr 100,000 mile warranties ring a bell?
An additional scenario that could put downward pressure on sales is if reduced access to credit and a reduced willingness to consume translate to a lower standard of living where the number of automobiles per capita significantly decreases. I think that scenario is overly pessimistic and I would sooner expect a pick-up in sales of cheaper models as consumers trade down from luxury to economy vehicles before forgoing automobile ownership altogether.

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