U.S. Auto Sales Show Strength Despite Deceleration

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Although Americans’ intent to acquire new vehicles slowed somewhat in September, due to persistent concerns regarding the outlook for the overall economy, vehicle purchase intent remains relatively strong among consumers. TechnoMetrica's Auto Demand Index level declined by 15 points in September, registering an overall score of 108, indicating that auto sales will grow in the near future, albeit at a slower rate than last year’s record performance.

Fueled by low gas prices, rising personal income, and the luring power of car deals, vehicle purchase intent remained relatively strong among consumers this month, according to the most recent reading of the Auto Demand Index. Thus, although new vehicle sales may not perform at the same robust pace as last year, TechnoMetrica anticipates that auto sales will continue to show strength, and exhibit some acceleration as we enter the final months of the year.

TechnoMetrica Market Intelligence developed the Auto Demand Index, or ADI, as a way to measure the intent of consumers to buy or lease a new vehicle within the next six months. Raghavan Mayur, president of TechnoMetrica, explained that the ADI, which is conducted monthly, is based on the response to a key question posed to more than 900 adult Americans: How likely is it that you will buy or lease a new vehicle within the next 6 months?

In September, Americans’ intent to acquire new vehicles did slow somewhat. After gaining 41 points in August, the Auto Demand Index level declined by 15 points this month, registering an overall score of 108. This weakening reflects Americans’ uncertainty regarding the outlook for the overall economy, due to concerns about the state of the U.S. labor market, and the continual slow rate of growth displayed by the economy.

However, the Auto Demand Index level remains above 100, which signifies growing strength and momentum for purchase intent. Further, September’s Index score surpassed all three of its moving averages, indicating that vehicle purchase intent will accelerate slightly in the near future. The Index level topped both its 12-month and 6-month moving averages (101) by 6 points, while exceeding its 3-month (105) average by three points. Meanwhile, the 3-month moving average gained four points in September, marking the second straight month of growth in the reading.

In addition, our momentum indicator (MACD) improved for the second month in a row, rising 0.4 point to a reading of 2.7. As a result, though auto sales may not set another record this year, we expect that they will grow slightly in the coming months.

“While the Auto Demand Index reading did weaken somewhat this month, generous incentives and attractive deals should help boost new vehicle sales in the near future, though they will likely not grow at the same pace as last year,” said Raghavan Mayur, president of TechnoMetrica.

A number of economic developments have contributed to the relatively high rate of purchase intent among consumers. For instance, Americans grew slightly more optimistic regarding the outlook for their personal finances in September, according to our monthly Investor’s Business Daily/TIPP Economic Optimism Index. The Personal Financial Outlook measure, a component of the Economic Optimism Index that gauges how Americans foresee their own financial situation in the near future, increased by 0.6 point this month, to attain a reading of 58.6. Americans’ confidence in the outlook for their personal finances can be attributed to such factors as rising personal income and lower gas prices. According to statistics released by the Bureau of Economic Analysis, Americans’ personal income rose 0.4% ($71.6 billion) in July, marking the largest increase in three months. Further, income has increased 3.3% over the past year.

Relatively low gas prices may also be fueling the strong demand for new vehicles. Although the average price of gasoline per gallon has slightly increased recently, the current national average of $2.21 is $0.07 lower than it was at this time last year.

Additionally, prospective buyers continue to be enticed by the generous incentives being offered by automakers. As a way to boost auto sales, manufacturers have accelerated incentive spending over the past year. Compared to one year ago, average incentives per vehicle rose 7.7% in August, according to Kelley Blue Book.

However, as the increase in incentives indicates, purchase intent is no longer performing at the robust levels that it has exhibited over the past couple of years, and, like auto sales, may have already reached peak performance. According to Robert Austin, a marketing consultant who has previously held senior management positions with Rolls-Royce Motor Cars and Volvo, the solid growth in auto sales last year was largely driven by pent-up demand among drivers looking to replace vehicles that, on average, had been on the road for more than a decade. With the perfect combinations of low gas prices, rising incentives, and an improved economy added into the mix, 2015 provided these drivers with the perfect opportunity to finally acquire new vehicles. Now that the needs of these drivers have largely been satisfied, the imperative to purchase a new vehicle is no longer as strong.

“Last year, many consumers needed to acquire new cars, as their current vehicles were too old to be trustworthy. Today, this sense of urgency isn’t there,” said Mr. Austin. "Therefore, I think the peak of big replacement buying for very old cars may be behind us.”

In addition, the prospect of electing a new president may also be causing consumers to postpone auto purchases, due to the uncertainty regarding the potential impact of a new administration’s policies.    

Thus, efforts by automakers to guarantee another record year, through increased incentives and more deals, are contending with an exhaustion of demand, as well as consumers’ willingness to wait for the opportune time to make a purchase.

“Currently, the automakers’ desire to sell finds itself at odds with consumers’ desire to buy. This difference between factory desire and customer indifference will lead to increased incentives as we approach the year's end, and outstanding purchase opportunities for new car customers," explains Mr. Austin. “Many consumers are content to wait until December to acquire a vehicle, as the end-of-year deals are usually the most attractive to them.”

Besides measuring purchase intent, the Auto Demand Index also allows us to gain insight into brand preferences among prospective buyers. This month, Chevrolet, which placed third in August, tied Toyota for the top spot in brand choice. Both brands garnered a 14% share of likely buyers. Meanwhile, Ford, preferred by 13% of prospective buyers, dropped one position to take third place. Nearly one in ten consumers (9%) chose Honda as the brand they plan to purchase next, while Nissan and GMC were both desired by 4% of likely buyers.

In terms of the types of vehicles consumers plan to acquire, mid-size vehicles remain the most preferred selection among likely buyers. In September, one in five respondents (21%) would choose a mid-size vehicle for their next auto purchase, a slight decline of one point from August. Meanwhile, Small SUVs continue to be popular among consumers, as 16% of prospective buyers named this vehicle type as their top choice. Preference for full-size vehicles remained unchanged from last month, at 14%, while the share of consumers planning to acquire pickup trucks improved one percentage point, to 13%.

Through the Auto Demand Index, we are also able to measure purchase intent among key demographic groups. This month, parents continued to display the highest level of purchase intent, as the segment’s Index score climbed 21 points to a reading of 159. Vehicle purchase intent was also strong among the African American and Hispanic segment, which registered an ADI level of 138, a gain of 13 points from August. Americans residing in the Midwest exhibited robust growth in intent to acquire a new vehicle, as the Index score increased by 20 points among the group. Overall, purchase intent improved among 16 of the twenty-three segments that TechnoMetrica tracks on a monthly basis.

Each month, TechnoMetrica uses Random Digit Dial telephone methodology to conduct live interviews with more than 900 respondents, using both landlines and cell phones. The margin of error for the survey is +/- 3.2 percentage points. In addition, recent statistical analysis has shown a strong correlation between the Auto Demand Index and actual U.S. vehicle sales.

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