Are motorists becoming more jittery about signing for a new car?
By most accounts, the U.S. auto industry has been one of the major engines of the American economic recovery, car sales helping offset slow housing demand and other economic indicators. But are those other factors now starting to give potential car buyers the jitters?
Even with fuel prices coming down, there are unsettling signs of a slowdown in showroom traffic and the ability to dealers to close sales, cautions Art Spinella, lead analyst at CNW Marketing. And so, while May sales should still be up, year-over-year, demand will likely take a tumble compared to April unless dealers can deliver some solid Memorial Day holiday traffic.
“Some of the steam seems to be coming out of the new-car market” as of mid-month, Spinella cautions. While dealers are still seeing showroom traffic, he adds, closing rates have fallen sharply, noting that, “People are looking but are hesitant about taking the plunge.
Based on sales data from roughly midway through May, CNW forecasts overall U.S. new car sales will be up only about 6% from May 2011, one of the smallest increases the industry has seen for quite some time, well below the double-digit pace of 2012 overall, year-to-date.
And the figures might underscore the concerns, as Spinella suggests manufacturers may be ramping up marketing efforts – notably including incentives – to bring shoppers into showrooms and then help dealers close the sale.
CNW’s so-called Jitters Index took a sharp 7% rise over year-ago levels, despite the recent easing back of fuel prices. “Food prices, local taxes and federal tax policies that impact family economic decisions — especially those attached to a long-term finance contract – have a large share of consumers unwilling to pull the big-purchase trigger,” Spinella warns.
What’s telling is that even the used car market appears to weakening, at least a bit. Demand for previously owned vehicles has been even hotter than the new car market in recent months, in many cases reflecting consumers’ financial challenges – and difficulty arranging the larger loans for a new model.
Nonetheless, CNW data show that those who do get into a new car, truck or crossover have been paying more – average transaction prices up an average 8.74% for 2012, a figure echoed by other recent reports from tracking firms like Edmunds and TrueCar.
One particular concern CNW is tracking is the sharp decline in new car sales to youth buyers. In the late 1990s and early 2000s, they accounted for about 5% of the U.S. market. That’s now down to barely 2% among 16 to 21-year-olds.
What’s unclear is whether it’s simply the result of high youth unemployment, a growing disinterest in cars, in general, among Millennials, or both factors at play.