BusinessWeek: January 11, 1993

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 Economic Trends

SO MANY CLUNKERS ON THE ROAD MAY SPARK A SURGE IN CAR SALES

After another miserable year of selling only 13 million domestic and imported cars and trucks, the Automobile DeAers' Assn. is projecting total motor vehicle sales of only 13.5 milhon in 1993, and the major car manufacturers aren't much more optimistic. But economists at Citibank expect sales to approach 14.5 million and to cruise past 15 million in 1994. "The dam on auto and truck sales,' they predict, "will start to break."

Fueling this upswing, say the analysts, will be the interaction of two factors: the quickening recovery and years of pent-up demand. In the wake of the recessions in the early 1970s and 1980s, they note, both auto and truck demand surged, with passenger car sales jumping by 2.5 million units within two years and eventually climbing to 11 million. But this time around, passenger car sales have gone nowhere, even though light-truck sales have recovered their peak rates of the 1980s.

Meanwhile, the nation's car fleet has been aging. Since the mid-1970s, a combination of slow income growth, soaring car prices, and improved durability have induced owners to hang on to their cars longer. But the recent rise in the average vehicle's age to 7.9 years for cars and 8.1 years for light trucks in 1991 (and almost certainly. 8 years for cars in 1992) suggests that pent-up demand and basic replacement needs are approaching a critical mass--particularly since 20% of the cars on the road are more than 12 years old.

Indeed, purchasing conditions appear increasingly favorable. Interest rates on auto loans have dropped three-and-a-half percentage points since early 1991. And Detroit's Comerica Bank reports that the amount of family income needed to purchase a new car declined to 29.7 weeks in the third quarter, the most favorable affordability level in more than five years.

GENE KORETZ
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