Uncertainty in the economy has certainly created some challenges for the automotive market.  The Seasonally Adjusted Annual Rate (SAAR) for new car sales barely topped 12M for August and used sales declined by about 3% according to CNW.  Considering the tumultuousness of stock market and the increased dissatisfaction with economic policy, new car sales should be considered a bright spot in our economy.

Economic headwinds aside, there are reasons to believe that momentum will continue to build for new vehicle sales. For starters, replacement demand for vehicles should keep the new car sales pace at today’s levels with many experts believing we should see some improvement in upcoming months if we aren’t faced with any new economic challenges. The fact of the matter is, the pool of vehicles in the US is aging and consumers will be forced to purchase a replacement vehicle sooner rather than later.  

In addition, used vehicle prices will also help nudge consumers back over to new side because of their current position of strength.  For example, even though prices for small and mid-size cars have softened as of late, prices for 2-to-5 year old models are still up 15 - 20% relative to last year.  In fact, AuctionNet data shows that prices for most segments – car and truck – still in the black compared to last year.

Declining late-model used supply should also play a role in stimulating new vehicle sales.  The impact from the pull out of leasing in late 2008 is only now coming to pass and NADA expects a significant drop in lease returns to occur late this year and extend through 2012.   This will benefit new vehicle sales by way of reduced choice and because a used supply/demand imbalance will push used prices closer to new. 

Lastly, we foresee incentive increases – primarily from Japanese manufacturers – luring more consumers back to the new vehicle market as we move deeper into the 4th quarter following a full return to pre-tsunami production.  Incentives on many car and CUV segments are still relatively low which provides an opportunity for manufacturers to stimulate additional sales without creating negative implications for brand strength, profitability, and used vehicle prices.