May Auto Sales Strong as Easy Credit Lures Buyers

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Cars in 2014New vehicle sales soared in May to levels not seen since last decade’s housing bubble — this time fueled by easy credit, warmer weather and more optimistic consumers.

Americans bought new vehicles at an annual rate of 16.8 million units in May, the strongest pace since February 2007 and up from 15.5 million in May 2013, according to Autodata Corp.

Among the Detroit Three automakers, Chrysler led the way with a 17 percent increase — marking its 50th consecutive monthly increase — and General Motors and Ford rose 13 percent and 3 percent, respectively.

Trucks, SUVs, midsize sedans and crossovers continue to be the hottest segments.

“What we’re seeing is certainly beyond expectations,” said Alec Gutierrez, senior analyst for Kelley Blue Book’s KBB.com, in an interview.

Large SUVs such as the Cadillac Escalade and GMC Yukon flourished, despite an uptick in gas prices that has not scared off customers.

Instead, easy credit is drawing buyers into the showroom. Among those buyers who required financing, the average loan was for $27,612 in the first quarter — an all-time high for the industry, according to Experian Automotive. More consumers are taking out 6- and 7-year loans. With the industry’s average transaction price in May at about $30,000, many buyers are putting less than 10 percent down.

The big numbers remind some of the leverage that backfired on consumers in 2008 when their houses began falling in value. While many automakers are resorting to bigger rebates and discounted loans to stimulate sales, so far there’s no evidence those added costs are eating into their profits.

The risk is that they may be pulling forward sales that now won’t happen later this year or early in 2015.

But Emily Kolinski Morris, Ford senior economist, and John Felice, Ford’s top U.S. marketing executive, don’t see another bubble on the near horizon.

“The industry is very robust,” Felice said during a conference call.

Bill Fay, vice president of Toyota division, said dealers have been offering 72-month no-interest loans on the Tundra pickup. He did not rule out extending similar offers for passenger cars.

Toyota’s sales surged 17 percent as incentives juiced Camry sales by 26 percent to 49,584 units, making it the nation’s second-best-selling vehicle.

Nissan posted a 19 percent increase, Honda was up 9 percent, Kia rose 15 percent and Subaru was up 11 percent.

An outlier, Volkswagen sales fell 5 percent, as its mainstream VW brand suffered a 15 percent drop, which its luxury Audi brand only partially offset with a 26 percent increase from May 2013.

Chrysler’s winning streak continued for the month, fueled mostly by Jeep, which sold more vehicles — up 58 percent from a year earlier — than in any previous month ever, led by 15,992 sales of the new Cherokee, which was not available for sale at this time last year.

Ram truck sales jumped 19 percent. Dodge eked out a 3 percent increase, while Fiat rose 18 percent and the Chrysler brand fell 22 percent. The redesigned 2015 Chrysler 200 began reaching dealerships in May, with a larger volume of sales expected in June and July.

“Our Jeep sport-utility vehicles and Ram pickups continued to do well in May as our dealers reported brisk May sales over five weekends and the Memorial Day holiday,” Reid Bigland, head of U.S. sales, said in a statement.

Meanwhile, GM is experiencing no measurable negative impact from its record wave of recalls. In fact, dealers are trying to capitalize on the influx of consumers who are getting their cars fixed — by selling new vehicles to them.

For GM, Chevrolet sales rose 14 percent, Buick was up 11 percent, GMC rose 8 percent and Cadillac increased 6 percent.

The Chevrolet Cruze compact sedan posted a 40.5 percent increase to 32,393 units. The company’s vital full-size pickups rose 9 percent collectively.

Ford’s modest gain was fueled by a record month for the Fusion, which rose 15 percent to 33,881 units.

Sales of Ford’s F-series pickups fell 4 percent to 68,520 from 71,604 in May 2013. The company’s Escape SUV rose 9.5 percent to 31,896. Lincoln sales rose 21 percent.

Even with 13 weeks of downtime at its two truck plants to make the all-new 2015 F-150, Ford will not run out of pickups because of a carefully orchestrated inventory plan in the past 18 months, said Joe Hinrichs, Ford president of the Americas.

The good news for all the players is that full-size pickups are selling at an average price that is more than $3,000 higher than a year ago, said Erich Merkle, Ford sales analyst. The average price of the F-series in May was $40,000.

“The truck business is healthy,” Merkle said.

Source: MCT Information Services