Why Car Sales Keep Climbing

Guest Editorial From Jerry Flint Forbes.com

September 5, 2002:

In August, the U.S. auto and light truck sales rate shot up 13% from last year. General Motors was ahead 18% and every carmaker but Volkswagen and Isuzu showed unit sales gains from the year-ago month. The industry's total sales for eight months are ahead of a year ago.

Some recession. What's behind the car-selling boom?

First, great products.

Product is always first over the "deal." Detroit's trucks are excellent vehicles--powerful, roomy and handsome. I'm talking about sport utilities like the Explorer from Ford, pickups like GM's Chevy Silverado and the Chrysler Dodge Caravan minivan.

The cars and "crossovers" sold by overseas makers are attractive, fast and offer terrific quality. Buyers can chose from great vehicles like the Camry from Toyota and the RX 300 from Lexus, as well as Honda's new Accord and new Pilot, Nissan's Altima and a wide range of exciting BMWs and other German cars. Today's product is the best ever and is feeding the boom. That's first.

Jaguar sales were up over 80% in July 2002 versus the same month last year.

Second, the deals--like 0% financing--are motivating consumers. These incentives get credit for much of the buying wave, but believe me, they are just part of the reason.

Remember, everybody in America (figuratively speaking) already has a car or two. People don't have a compelling need to run out and buy a new car or truck. But consumers are finding it hard to turn down great deals on great products. Another factor: A great number of Americans are already locked into loan or lease payments for their current vehicles, so why not switch the payments over to a new car or truck?

What about the great cultural changeover that I alluded to earlier? People are changing the types of vehicles they own; many buyers are replacing their conventional passenger cars or trucks with all-wheel-drive cars such as a Subaru or Audi, or with "half-car" crossovers (like the Lexus RX 300 and Honda Pilot).

People that don't have these vehicles want to join the trend. These folks are catching up with what's happening in the car world--and that boosts sales. There's a second part to this cultural changeover: The number of cars per household is on the rise. Look at the driveways around you--doesn't everyone seem to have two or three or four vehicles?

The population is at the car buying age, too. People below their 20s don't buy new vehicles, but those beyond their 40s do--and the great baby boom generation, the "have it all" generation still has money, despite the decline in the stock market, and is willing to spend it.

How long will the sales surge last?

In 2000, the market hit 17.4 million units; last year it fell just slightly to 17.2 million. I predict that when the books are closed, 2002 will be just under 17 million.

My guess is that sales this October and November will sag below last year. My reason: It will be hard to match those percentage gains in 2002 because volume soared during those months in 2001--when GM and the other car companies first rolled out 0% financing in the wake of Sept. 11.

Most analysts think sales will fall next year. But who knows? The basic trends will continue--great product, great deals and a great cultural change.

Maybe the good times will keep rolling, too.