NADA’s Top 5 Reason for Robust Car Sales in 2011

U.S. new-car and light-truck sales will register double-digit percentage gains in 2011, says Paul Taylor, chief economist of the National Automobile Dealers Assn.

“The auto industry is coming back strong from what has been a difficult economy,” he says. “Auto sales are playing a key role in leading the economic recovery.”

With the average age of cars and trucks on the road today at more than 10-years-old, Taylor says Americans will need to replace their aging vehicles. This fact, combined with low financing rates and wider credit availability, will help boost new-vehicle sales nearly 12% a year.

He predicts light-vehicle sales this year will reach 12.9 million units compared with 11.5 million last year.

Here are NADA’s top five reasons for accelerated new-vehicle sales this year:

1. More model choices.

Auto makers are producing a wide variety of new cars and trucks that are headed to dealer showrooms. This week, for example, the North American International Auto Show in Detroit will display more than 700 new cars and trucks representing more than 50 domestic and international brands.

“The worldwide debut of nearly 40 cars and trucks at the show in Detroit is a strong indicator that the auto industry is making a comeback and will lead to increased manufacturer production and sales in 2011,” says Taylor.

NADA Chief Economist Paul Taylor.

2. Available credit at historically low interest rates.

The Federal Reserve Board indicates the performance of the economy is “likely to warrant exceptionally low levels for the federal funds rate for an extended period,” which means auto lenders will be able to offer attractive financing rates, Taylor says.

“Recovering world market conditions and the Federal Reserve’s current policy will accelerate the recovery of new-car and truck sales in 2011. Loan rates for car loans four to six years long are likely to see only modest increases over the next year as the economy grows.”

3. Tax certainty leads to economic growth.

The extension of so-called Bush tax cuts by Congress in December, combined with the budget extension to fund the government, will provide at least a two-year horizon for business investment and consumer planning that should bolster economic growth, Taylor says.

4. Stock market rise will boost luxury-car sales.

The Dow Jones Industrial Average and S&P 500 index closed in mid-December 2010 at their highest levels since September 2008.

“Continued stock-market gains will boost luxury car sales this year,” says Taylor. “Already, strong sales of luxury vehicles have been assisted by stock market gains. Stock performance influences those who own significant amounts of stock outside of retirement programs and who buy most of the new luxury vehicles.”

5. Rising gasoline prices expand vehicle-sales mix.

“While never good for the economy, higher gas prices increase consumer demand for small cars, hybrid vehicles and diesels,” Taylor says. “New cars are more fuel efficient.”

Many industry analysts are predicting that gasoline prices will exceed $3.50 a gallon in early 2011. In the summer of 2008, prices hit record levels of more than $4 a gallon.

Taylor foresees higher gasoline prices also will increase demand for the more expensive hybrids that typically languish on dealer lots when gasoline prices are lower. Sales of diesel cars and trucks will increase as well, he says.