During the first quarter of this year, auto sales were showing some signs of stalling. However, the recently released auto sales numbers for April show a significant improvement.
The actual sales number was a seasonally adjusted total of 17.4 million units annualized compared to the March total of 16.6 million cars sold. This was a record high level for the month of April.
The pace of auto sales for April was more consistent with the results that occurred towards the end of last year. This would imply that the slowdown in auto sales we saw in the first quarter of the year might be a short-term aberration rather than the start of a new trend.
A normal pace of auto sales has historically been about 15 to 16 million units annualized. During the depths of the past recession auto sales fell to a rate of 10 million units. Therefore, a selling rate over 17 million units is quite strong.
The increase in sales was centered in the truck segment. While passenger cars had a 5% decline in sales, trucks registered an 11% increase.
Low gasoline prices continue to fuel the demand for trucks. On a national level gasoline prices are only about $2 per gallon, much cheaper than the prices that we are paying in our local area.
Gasoline prices will likely be increasing over the next few months. This will be due to the recent increases in the price of crude oil, plus the start of the summer driving season.
Even if gasoline prices rise .50 cents a gallon from here, it is unlikely to put much of a damper on the demand for SUV’s and pick-ups. In the recent past gasoline prices normally had to rise to the $3.50 to $4 per gallon range before consumers made much of a switch to smaller cars.
Another thing that is propelling auto sales higher is low-cost financing. Interest rates continue to be at very low levels allowing many consumers to afford auto loans.
Another thing that tends to lower monthly payments is extended financing, as some auto loans are going for 84 months. This is not something I would recommend. With long-term car loans someone is dealing with a car payment the bulk of the time. Not having that car payment could allow individuals to better save for retirement, or pursue other financial goals.
During the first quarter of the year the pace of consumer spending slowed down, which helped to contribute to fairly modest economic growth. A key reason for this slowdown in spending was the softer pace of auto sales.
With auto sales in April increasing, would expect to see overall consumer spending stronger. This should lead to better economic growth relative to what we experienced during the first quarter of the year.
Over the past year auto sales have been one of the leading contributors for the economy, in what has otherwise been a slow growth environment. The resurgence in auto sales for April should at least set the tone for a somewhat better economy this quarter.
