Consumers are feeling more upbeat about buying a car as the economy continues to improve.
With the New Year fast approaching, there are new signs the auto industry will finish 2013 with a flourish as consumer sentiment continues to improve along with the job market.
Sales for 2013 are certain to be the best in six years, according to industry analysts who continue to debate just how much more upside potential there is for 2014 and beyond.
“We expect December to finish strong,” said Larry Dominique, President of ALG and Executive Vice President of TrueCar.com. ”Consumers are taking advantage of low lease rates and inexpensive financing, which continues a shift from buying used to buying new.”
For December, new light vehicle sales in the U.S. — including fleet — are expected to be 1,406,000 units, up 4.1% from December 2012 and up 13.5% from November 2013. The December 2013 forecast translates into a Seasonally Adjusted Annualized Rate, or SAAR, of 15.8 million new vehicle sales, down 2.9% from November 2013 and up 3.5% over December 2012.
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December is proving to be a good month for buyers hoping to find new wheels before the ball drops in Times Square. The industry has been raising incentives in recent weeks, givebacks averaging about 4% more than a year ago, and 0.5% above November 2013, at an average $2,676 per vehicle, according to True Car.
Meanwhile, consumer confidence, a key element in new-vehicle sales, has improved, according to the Thomson Reuters/University of Michigan Surveys of Consumers. Most of the gain reflected more favorable buying plans due to renewed discounting as well as more favorable short-term prospects for the economy.
The Sentiment Index was 82.5 in December 2013, up from 75.1 in November and well above last December’s 72.9. The year-to-year gain was nearly equal for current economic assessments and future economic prospects. The Expectations Index rose to 72.1 in December, up 13.0 points from last year, and the Current Conditions Index was 98.6 in December, up 13.3 points from last December’s reading.
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Buying attitudes toward homes, vehicles and household durable goods all improved in December. Personal finances, the most critical factor that shapes consumer spending, did slightly improve in December, although that was largely due to rising values of homes and stock holdings among those in the top third of country when measured by personal wealth.
“Consumers were clearly relieved when the D.C. gridlock ended,” said Michigan economist Richard Curtin, director of the surveys. “Confidence has bounced back to nearly the same levels it was before the crisis in mid-2013.”
But Curtin cautioned that simply ending the shutdown or passing a new budget to keep the government open was not viewed by consumers as a proactive step toward better economic policy.
“While they anticipate the economy to improve and retailers to offer larger discounts, most consumers still anticipate tiny wage gains—gains that are even smaller than the currently low inflation rate. Consumers are not ready to celebrate, aside from those who have benefited from rising stock market wealth,” Curtin said.
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Curtin also said personal finances improved among all households in the recent survey, although most of the gains occurred among those under age 45 and those in the top third of the income distribution. The largest differences were due to rising stock values, primarily held by top income households.
Although these same age and income groups anticipated the largest gains in their nominal incomes during the year ahead, those increases were below the expected inflation rate. No group anticipated rising inflation-adjusted incomes during the year ahead.
When asked to identify recent trends, consumers reported more news of job gains, and anticipated that the national unemployment rate would decline in the year ahead. The expected declines were due to a strengthening economy in the year ahead, although over the longer term the economy was still seen as vulnerable to setbacks, Curtin stressed.