In what could be a boon for motor carriers that haul freight for the automobile industry, car and light truck sales are projected to increase 12% worldwide to 12.9 million units this year, up from 11.55 million units last year, according to a National Automobile Dealers Association (NADA) research brief.
Paul Taylor, NADA chief economist, stated in the research piece that a mix of factors – including even the steep increase in the price of gasoline expected for this year – are favoring stronger sales of light vehicles.
“While never good for the economy, higher gas prices increase consumer demand for small cars, hybrid vehicles and diesels, [as] new cars are more fuel efficient," Taylor said.
He noted that many industry analysts are predicting that gasoline prices will exceed an average of $3.50 per gallon in the U.S. this year – mirroring the all-time high achieved in the summer of 2008, when gasoline prices rose above $4 a gallon in some places.
Taylor pointed out that higher gasoline prices will also increase demand for the more expensive hybrids that typically languish on dealer lots when gasoline prices are lower, with sales of diesel cars and trucks expected to rise as well.
“In the first quarter of 2011 and beyond, new gasoline and diesel hybrid cars and light trucks entering the market will get a stronger look from consumers concerned by high gasoline prices,” he said.
“[And] the value of small cars and hybrids during times of high fuel prices will increase in the used-vehicle market, and values for large vehicles in the light-truck segment, such as truck-based SUVs, will moderate.”
The shortage in used vehicles is working in some consumers' favor, too, he added, because it has improved trade-in equity on their one- to five-year-old vehicles. That trend is paying dividends for dealers, too, because used-vehicle inventories are now more valuable. “The shortage of used cars is one more pillar of strength for the new-car market,” Taylor explained.
Credit availability also remains a positive, with very low interest rates helping drive new-vehicle sales this year, he noted. The Federal Reserve Board at its last meeting indicated that the performance of the economy is likely to warrant exceptionally low levels for the federal funds rate for an extended period, putting automaker finance companies and other lenders in a position to offer very attractive financing rates on new-car loans, according to Taylor.
“Recovering world market conditions and the Federal Reserve's current policy will accelerate the recovery of new car and truck sales in 2011,” he said. “Concern about federal budget deficits and long-term inflation may contribute to higher 30-year fixed rate mortgage rates, but 4- and 6-year rates for car loans are likely to see only modest increases over the next year as the economy grows.”