Car sales are on a roll

Hilbish Ford's Tim Vaughn: Car sales are on a roll

By Erica Batten. A downshift in auto sales since the first quarter of 2016 has led to questions about whether consumer spending is on the decline. According to a May report from Charlotte-based Wells Fargo Securities, car sales have been a crucial part of real consumer spending growth, particularly after the 2008 recession.

Vehicle purchases and leases represent 3.5 percent of overall personal consumption expenditures since 2008.

“We are preparing for a slowdown in 2017 and 2018,” said Robin Smith Salzman, owner of Lake Norman Chrysler Dodge Jeep Ram in Cornelius. “Not to the extent of 2008—that was the ‘perfect storm’ that we hope we never see again.”

Declining car sales led to reduced production of automobiles, which further depressed the GDP. Real GDP growth during the recession would have been 1.5 percentage points higher if the contraction in auto output was excluded, said Wells Fargo.

Tim Vaughn, general manager at Hilbish Ford in Kannapolis, described a shift in the industry’s focus during the recession.

“Certainly we saw a [sales] decline,” Vaughn said. “However, business in the service department picked up as people were keeping vehicles longer and therefore paid close attention to maintain them in good working condition.”

Right now, both Vaughn and Smith Salzman say sales are trending upward. Jeeps, including the Wrangler and Grand Cherokee, are top-sellers at the Lake Norman dealership. At Hilbish, trucks and SUVs are outselling small cars.

This echoes the Wells Fargo report, which puts light trucks, a category encompassing minivans and SUVs, in the fastest-growing sales slot. Relatively low gasoline prices over the past two years have bolstered sales of these larger vehicles.

As for overall car sales, Wells Fargo predicts a robust close to 2016.

Car sales have been steadily rising since 2010, the report said, appearing to have peaked in October 2015 at 18.1 million units nationwide that quarter, which the report’s authors call “unsustainable.” By comparison, first quarter sales from 2009 were 9.4 million. But despite a slight downturn at the beginning of 2016, interest rates and other factors will maintain sales levels.

“The consumer’s ability to borrow money seems to affect auto sales the most,” said Smith Salzman. “At this time interest rates are low, allowing more people to borrow greater amounts.”

Automobile manufacturers have added financial incentives, which should keep auto loan rates low even if the Federal Reserve raises interest rates, said Wells Fargo. Interest rates for auto loans have stayed close to the historical low of 4 percent.

The slow but steady rise in the job market should also support strong demand for vehicles. During the last 12 months, nationwide employment grew an average 224,000 jobs per month, and real disposable income has grown at a yearly average of 3 percent over recent years.

Because leases have been more heavily utilized over the past several years, sales in the auto market could shift more toward used vehicles as those leases expire.

That’s a trend Vaughn has already seen at Hilbish Ford, where around 1.4 used cars are sold for every new one. Smith Salzman said their used cars sales have grown, too—especially the certified pre-owned sector.

All this is good news for both the auto industry and the overall consumer spending outlook. The Wells Fargo report predicts GDP growth over the next two quarters as “fundamental drivers” of automobile demand remain strong.

Locally, the outlook is much the same.

“Cabarrus County officials and officials in our municipal governments are pro-business, pro-jobs, pro quality of life,” said Vaughn. “All that adds up to positive momentum now and in the foreseeable future.”


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