Auto Sales Outlook Favorable for Second Half of 2004, According to NADA

MCLEAN, Va., July 15 -- Despite mixed results in June, sales of new cars and light trucks are likely to gain strength during the second half of 2004, according to National Automobile Dealers Association's (NADA) Chief Economist Paul Taylor. He projects that year-end sales will reach 16.8 million vehicles, which is consistent with NADA projections throughout the year. It would make 2004 the fourth-best annual new vehicle sales total in automotive retailing history.

Taylor credits a series of factors for the positive outlook, including a growing economy, restrained action on interest rates by the Federal Reserve, expected escalation of customer incentives during the remainder of the year (already underway in early July), quality new-product introductions, and enhanced customer service at franchised new-car dealers.

"All signs point toward healthy summer and fall selling seasons in the second half of the year," said Taylor. "Consumer confidence is growing as the economy strengthens, and interest rate hikes are moderate considering the multi-decade low in rates currently enjoyed. While inflation is expected to stay in check, any persistent signs of accelerating price pressure would be met with a faster pace of interest rate increases by the Fed, which could moderate the sales pace in 2005."

Customer incentives will continue to play a major role in auto sales for the rest of this year, noted Taylor. "Customers know what they want to pay, and they shop carefully to find the right vehicle and the desired price," he said. Current high vehicle inventories give customers a broad choice of attractive vehicles.

In addition to favorable economic conditions and incentives, significant investments by dealers in remodeling and customer improvements in their dealerships enhance the experience for customers. More than one-third of dealerships have invested in customer area improvements over the past five years that are taking shape now, which often include such amenities as Internet stations, children's play areas and coffee bars.

"Dealers have taken great strides to make the dealership visit more enjoyable, convenient and productive to serve their customers better," he added. "Dealers want to keep customers comfortable, connected and on schedule. That's why innovations such as the ability to make sales and service appointments online are becoming so common at dealerships. As more customers use the 'Net' as a research and organizational tool, dealership Websites are helping them do that. It's contributing to higher new and used car sales, as well as stronger parts and service volume at new car dealerships -- a win-win for customers and dealers."

Taylor anticipates that "Crossover Utility Vehicles " (CUVs), based on car platforms and drivetrains, will continue to grow in popularity. Through the first-half of 2004, CUV sales have increased 16.2 percent over the first six months of 2003. Minivans are making a comeback with new designs, as the van/minivan category is second only to CUVs in sales growth. Van and minivan sales were up 6.5 percent in June 2004 over June 2003, and up 8.4 percent at mid-year versus the first six months of last year. Truck-based SUV sales were down in June, and up just one percent in the first half of 2004, following essentially even sales for these vehicles over the last three years. Pickup trucks dipped slightly by 7.5 percent this June over last, but are up 2.4 percent year-to-date, as both business buyers and consumers return to the market as the economy grows.

Taylor added that CUVs are driving much of the growth in the "truck" category, resulting in an influx of more nimble and fuel-efficient vehicles on the roads. "Double-digit sales growth for CUVs has been underway since 2000, and represents the 'silent revolution' in the sales market of late," said Taylor. "That trend is expected to continue."

Growth in the sales and appeal of hybrids is also expected to continue, as more popular body styles (such as CUVs) become available with hybrid drivetrains. The higher initial price ($3,000 or more in MSRP) means that hybrids are most in demand by consumers with long commutes and annual mileage tallies over 20,000 miles, rather than the typical owner's 12-15,000 miles driven in a year. Also, early adopters of new technology continue to be key buyers.

The limited quantity of hybrid models in the market assures that, although their rate of sales growth is high, they will continue to make up a modest percentage of total light vehicles on the road, according to Taylor. As the hybrid technology develops, costs should come down in relation to other vehicles. In the meantime, the average two percent annual increase in licensed drivers offsets the increased gasoline mileage that comes from advancements in both hybrids and typical gasoline engines in recent years.

The National Automobile Dealers Association, founded in 1917 and based in McLean, VA, represents approximately 20,000 franchised new car and truck dealers holding nearly 43,000 separate franchises, domestic and import.