Ahead of the Bell: February auto sales
DETROIT (AP) — Tax increases. Rising gas prices. Political dysfunction in Washington. None of that could keep Americans away from auto dealer showrooms in February.
Industry analysts expect last month's sales to be up about 7 percent from February of 2012 as the U.S. auto sales recovery keeps powering its way through bad news and uncertainty. Automakers release February sales figures Friday.
"I think these little speed bumps aren't big enough to slow down the momentum right now," said Jeff Schuster, senior vice president of forecasting for LMC Automotive, an industry consulting firm.
Schuster and other analysts say there are plenty of reasons to buy cars:
— People need to replace aging cars. Pent-up demand is driving sales, as is the expiration of two- and three-year leases.
— Interest rates are at historic lows, and credit is more readily available.
— Hiring has picked up, giving people more money to spend. Hourly pay has risen faster than inflation the past three months.
— Many automakers have exciting new vehicles to choose from, both trucks and fuel-efficient small cars.
Forecasters say it wasn't a normally lackluster February. Schuster says sales probably hit an annual rate of 15.2 million cars and trucks. The TrueCar.com auto pricing site predicts 15.7 million, making it the best February since 2007. That's far better than the 10.4 million sold in 2009, but short of the recent peak of near 17 million in 2005.
Matt LaFontaine, general manager of the LaFontaine Automotive Group, an 18-franchise chain in the Detroit area, said all of his dealerships that sell Detroit-based brands will beat their projections for the month.
"The biggest thing for us is just making sure we have enough product on the ground," he said.
Congress and President Barack Obama aren't likely to reach an agreement before $85 billion in automatic government spending cuts kick in on Friday, but LaFontaine said the debate and uncertainty haven't cut into auto sales. Customers, he says, "are ready to make a move."
Gas prices, which rose 36 cents per gallon in February to around $3.78 per gallon, also haven't hurt sales. In fact, sales of larger vehicles like pickup trucks have improved, Schuster said. Consumers also shrugged off a Social Security tax increase that started in January and cut take-home pay. For a household making between $70,000 and $100,000 per year, it cost around $300 per month, which is close to a car payment.
Barclay's analyst Brian Johnson said the tax increase has had little impact on new-car buyers, but it may hurt used-car sales because those buyers are more price-sensitive.
Automakers are spending less on discounts and deals, which cut into their profits and brand image. Discounts in February averaged $2,392 per vehicle, down almost 4 percent from a year ago, TrueCar said.
But low interest rates are offsetting that, LaFontaine said. The average four-year auto loan has a 2.5 percent interest rate, according to Bankrate.com. That's about half of what it was five or six years ago. On a $20,000 loan, that means a monthly payment of $438, down $23 from a 5 percent loan. Plus, automakers offer subsidized loans to spur sales, many with no interest.
And some consumers have no choice but to buy. The average vehicle on U.S. roads is a record 11.2 years old. Many car buyers are being forced to replace aging vehicles after hanging on to them through the Great Recession, and businesses are also replacing older pickup trucks.