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March Sales Hold Strong Despite Fuel Price Worries

More buyers downsizing as gas nips $4.

by on Mar.23, 2012

Improved availability of Japanese products, like the 2012 Toyota Camry, is helping boost March sales.

Sales of new vehicles have remained strong during March as the industry finishes off a robust first quarter – even though some observers had been worried that the market might begin to drag as fuel prices continue climbing towards record levels.

In another sign of strength in the automotive sector, Volkswagen of America has confirmed plans to add 800 jobs at its assembly plant in Chattanooga, Tenn., joining other automakers in adding jobs at assembly plants in the South and Midwest to keep pace with the demand for new vehicles. VW opened that Chattanooga plant last year as part of its plans to rebuild its market share in the US.  (For more on VW’s plans, Click Here.)

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So far this year, sales of VW brand models have increased 40%, officials from the German automaker said this week.

Meanwhile, Kelley Blue Book, KBB, a leading provider of information about new and used cars, estimates new-vehicle sales will reach 1,425,000 units in March.  That works out to a seasonally adjust annual sales rate, or SAAR, of 14.6 million.

That would be down from the 15 million SAAR in February but still marks the third month in a row when annualized sales will have topped 14 million.  The figure would also represent a 14% gain from March 2011.

At more than 1.4 million units, if sales trends hold through the end of the month, they will reach the highest level for any March since 2007, when industry sales topped 1.5 million units overall. March traditionally is a strong month as consumers cash-in their tax returns and use the money for a down-payment on a new vehicle.

And the latest surge in demand should provide a push for what is the traditionally strong spring buying season.

Industry analysts predict the final March numbers will show especially high consumer demand for fuel-efficient models, and LMC Automotive reports that through the first 18 days of this month compact and subcompact passenger cars accounted for 23% of total demand – up from around 18% as recently as December.

Some analysts had expressed concern that rising gas prices might begin driving buyers out of the market as they shifted money from discretionary budgets to cover bigger fuel bills.  But so far, that doesn’t appear to be happening.  If anything, the market is getting stronger.

“The first-quarter selling rate has outperformed the annual forecast for sales for the first time since 2008, when the automotive market started to decline,” said Jeff Schuster, senior vice president of forecasting at LMC.

Also buoying the market is consumer interest in redesigned models such as the Toyota Camry, along with improving supply conditions for Japanese makers, in general, after the 2011 supply shortages.  There’s also been a clear improvement in the availability of attractive finance opportunities.

Last year’s Japanese earthquake and tsunami led many buyers to delay purchases due to a shortage of models such as the Camry and the Honda Accord.  In KBB’s most recent Consumer Sentiment survey of in-market car shoppers, 29% of respondents complained about a small selection of vehicles, while an additional 28% responded that they had difficulty finding the specific vehicle they wanted.

Kelley expects many consumers who delayed vehicle purchases due to a lack of selection late last year now will buy in March, as inventory conditions continue to improve. An abundant supply of new vehicles also will help entice used-car shoppers to consider a new vehicle, especially with late-model used-car values increasing at a rapid pace alongside high fuel prices.

“Although we anticipate strong sales in March, it will fall short of the 15.1 million SAAR posted last month,” said Alec Gutierrez, Kelley’s senior market analyst of automotive insights.

“Sales in February were aided by unseasonably warm weather across the United States and an additional selling day due to the Conditions in the economy which have generally been positive through the first few months of the year,” Gutierrez said.  “And if conditions remain steady, the industry can expect to see continued strength in sales for the months ahead.

Nonetheless, he warned that fuel prices could slow the car market’s current momentum, “so this will be a key factor to monitor moving forward.”

Most automakers are predicting sales will grow at a healthy pace of 10% this year to around 14 million units – but some analysts are now upping their 2012 projections due to the year’s strong start.

 

 

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