Almost all of the current domestic economic measures are favorable to higher new car sales as we near the official start of summer. It is likely that many consumers will be telling themselves it is finally time to choose a new car or truck. Consumer confidence rose slightly in the latest reading from the Conference Board. And low interest rates and gasoline prices are likely to help cheer up consumers over the next year, as we explain below.
IMPORTANTLY, CARS AND TRUCKS IN USE ARE RELATIVELY OLD
According to Experian, the average age for cars is 9.6 years of age, and for light trucks as well. If you look at the median age, which is the age of the cars in the very middle of the age span of licensed vehicles cars and trucks are really old. The Median measure gives you the age of the car for which 50 percent of the other cars on the road are younger. That measure does not gauge the impact of the all those Bel Airs, Baracudas, Cameros, Chargers, Mustangs, Chevy 3100's (both 5and 3-window), Dodge Power Wagons, and Ford F-1s, built from 1948 through the 1960's, still lovingly cared for and licensed. (Some of those cars and trucks will be in a local car show near you this weekend. Please take time to stop by and support the preservation of the history of our industry.)
With the median age of cars you get a sense of the age of cars that people actually drive to work in rush hour traffic, and the typical age of those beaters on the road is still really old. The median age of that commuting car in use is 9.3 years.
With the median age, you get a sense of the age of cars that people actually drive to work in rush hour traffic, and the typical age of those beaters on the road is still really old. The median age of that commuting car in use is 9.3 years, and for trucks, 8.9 years. Really old. So even some of those folks who want to avoid a car payment will be coming in this weekend. Let them grumble, be sympathetic, and then put them in something brand new this weekend. They will be in to the dealership to thank you later this year.
One of the consequences of the miserable sales years in 2008 to 2009 is that there are about 8 million fewer used cars than there would have been if the recession had not come. That shortage increases the trade-in equity in most current cars that customers would trade in. And makes a late model used car less attractive compared with the new, since the price for the used car or truck is closer to the price of a new one.
This dramatic trend over the last 18 months is shown on Page 23courtesy of the NADA Guides and the National Auto Auction Association Auction Net wholesales data on used cars.
HOME PRICES STALL IN FIRST QUARTER SNOW DRIFT, BUT MARCH AND APRIL DATA ARE HEADED UPWARD
The first quarter data on home prices does not show quite the same progress that we saw underway in the fourth quarter of 2009. Snow knocked down home shopping in the winter, and financial institutions placed a lot of foreclosed homes into the supply of housing during those months. Existing home prices hit a snag as result of those foreclosed homes and tough winter conditions on the East Coast. That data shows home prices falling by a modest 6 percent. NADA had hoped to see a slight upward trend emerge, but that will be delayed into the current quarter. See http://www.fhfa.gov/webfiles/15779/1q2010hpi.pdf
on Page 18 to check on your state or states.
Importantly, March and April data suggest the market is again digesting the supply of homes coming to market, and home prices are again rising in most states. Monthly data on home prices, such as the Case-Shiller Index, shows progress as winter ended, with March home prices generally up versus February. April data is also encouraging as it becomes available from local real estate organizations. At least customers in most states are looking at home prices that are not falling much in the first quarter, and are now looking at a more active market that will be helped by low interest rates. Low rates are likely to be with us for at least a year.
TROUBLED ECONOMIC NEWS IN EUROPE HELPS U.S. ECONOMY AS DOLLAR STRENGTHENS
The strengthening U.S. dollar will help keep U.S. interest rates low over the coming year, and gasoline prices will remain relatively low as long as supplies of refined gasoline remain adequate. Still we will see gasoline prices drift up by 30 cents or so per gallon over the course of the summer. Crude oil prices remain well below $80 per barrel, which should keep gasoline prices in a reasonable range as we approach this Fall.
Source: Economic Update, Paul Taylor NADA Chief Economist
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