News Column

As U.S. Car Sales Pick Up, Trade-ins are Older

April 2, 2012

Mark Glover

auto

The economy remains wobbly, unemployment is still high and yet people are buying new cars at a pace that would suggest a sweeping wave of prosperity.

Even auto industry analysts concede that it's counterintuitive ... until you take a closer look at what's being traded in for new wheels.

The average age of vehicles traded in within the United States in January and February was about 6.2 years old, according to Santa Monica-based Edmunds.com.

Edmunds said that's the oldest on record, with the notable exception of July-August of 2009, when the average trade-in age was off the charts because of the federal Cash for Clunkers program.

But now, no such rebate program exists. In fact, Edmunds said, automakers' incentives in February this year were the lowest since February 2003.

Auto sales figures for March will be released this week, and most credible industry trackers are projecting a U.S. total of 1.42 million, the best in five years.

That's coming off a 2011 when California's franchised new-car dealers sold nearly 1.3 million vehicles, up 10 percent from 2010, according to the Sacramento-based California New Car Dealers Association.

Analysts say the evidence is irrefutable: Consumers who were holding onto aging cars through the recession are finally returning to the new-car market.

"I think people are hitting the breaking point, where they're saying, 'OK, it's better to get a new car than put more money into the old one,' " said Jessica Caldwell, senior analyst for Edmunds.

David Rodgers, senior vice president and general manager of the Sullivan Automotive Group, which oversees John L. Sullivan Chevrolet and Roseville Toyota in the Roseville Automall, said that, more than car age, he's been struck by the high mileage he's seeing on trade-ins.

"The average (age) is running about three to four years older than what we were seeing before (the recession), but the mileage is what is really noticeable," he said. "We're seeing 200,000 to 250,000 miles on some cars, where we were seeing 85,000 to 130,000 or 140,000 before."

Numerous analysts were citing "pent-up demand" for new autos even during the darkest days of the recession. They just did not know when the logjam might break.

For Roseville resident Rebecca Price-Young, it was last month, as she shopped the Roseville Automall to part with her old ride, a 1996 Toyota Corolla.

"We have a 3-year-old family wagon ... but for my car, for a long time it's been next year, then next year, then next year while we kept (the Corolla) running," she said. "We've finally saved enough money where I can get a new car for me."

New-car sales started edging up in California and other states in 2010, but there were still signs of consumers holding back late last year.

In last year's third quarter, R.L. Polk & Co. said the average length of ownership among U.S. motorists who had purchased a car new hit a record 71 months. Likewise, retention of vehicles originally bought used climbed to an all-time high of 50 months.

Caldwell and other analysts believe significant numbers from those groups are buying new now, even though economic conditions might not be ideal.

"One of the things we're seeing among buyers is that the average credit score is going down," Caldwell said.

And she said buyers are being more frugal amid high gas prices.

"We don't see as many large SUVs being purchased ... . It's not as strong as the smaller-car segment," Caldwell said.

Sullivan group's Rodgers said "there has been a major change in the dynamic, with (consumers) looking for cars getting 30 miles a gallon or above ... . Car and truck sales have done a complete reversal from 2008. Now, 65 percent to 70 percent of sales are cars in the 30 to 35 miles-per-gallon range."

The trend was easily found last month in a random sampling of Sacramento-area consumers at local car lots.

At the Elk Grove Automall, Sacramentan Roy Davis said he'd "finally had enough with spending money" to keep his 2000 Chevrolet Impala sedan in working order, and he was looking for a new midsize car with good gas mileage.

"I was getting ready to buy new back in 2008, and then the wheels came off our (finances)," he said. "With our daughter in college out of state, we started counting every dollar ... and a new car wasn't part of the deal.

"Now our daughter's out of school, and it's time to get a new car that will run a long time and ... not cost a fortune at the gas station."

Santa Monica-based TrueCar.com said fuel economy from new vehicle sales nationwide in January reached a record 22.9 miles per gallon, up from 22 mpg in January 2011 and 22.2 mpg in December 2011.

"If gas prices continue to increase, as expected over the spring and into the summer, we will continue to see record average fuel economy of newly purchased vehicles," said TrueCar analyst Jesse Toprak.

Other beneficiaries of increasing car sales are lenders.

Sacramento-based Golden 1 Credit Union, with more than 80 branches and 600,000 members, said the number of auto loans it made in January and February was up 35 percent compared with the year-ago period. In the Sacramento area, the surge was 53 percent.

Golden 1 said vehicle loans make up about 34 percent of its loan portfolio, and 40 percent of all loans made last year were auto loans. The credit union noted that the average trade-in vehicle age over the past 12 months is eight years, up from about five years in 2007.

"We are pleased to see the beginning of improved consumer confidence resulting in growth in automobile sales throughout the many markets served by Golden 1," said Donna Bland, credit union president and CEO.

Analysts warn, however, that sales are still short of pre-recession levels.

In California, CNCDA said statewide sales averaged about 2 million between 2000 and 2006. Caldwell noted that nationwide new-car sales peaked at about 17 million prior to 2008, and she believes it will take some time to get back to that level.

"I think that we can get 16 million, but I don't think it will happen this year or next year," she said. "I think we're looking at 2014.



Source: (c)2012 The Sacramento Bee (Sacramento, Calif.)


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters