Winnipeg Free Press - PRINT EDITION

Speed bumps ahead?

Brisk auto sales might start to skid shortly

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Automakers sold new cars and trucks so fast in August they blew past even the most optimistic forecasts.

The month's annualized U.S. sales pace was 16.1 million, Autodata reported, a rate not seen since November 2007, before the Great Recession. A year ago, the pace was 14.5 million, and that didn't seem bad at the time.

The raw numbers: 1.5 million new vehicles sold in August, up from a bit fewer than 1.3 million a year ago.

Year to date, car companies have sold 10.6 million new vehicles in the U.S., up from 9.7 million a year ago and a difference enough to keep three or four big auto factories running full blast.

The people buying all those cars and trucks are making big ones their favourites -- as if there'd never been $4 gasoline -- and are paying higher prices. TrueCar.com said the average transaction price in August hit a record $31,252.

And the Japanese brands -- so beloved before the recession, then somewhat out of favour -- have roared back. Toyota displaced Ford in the No. 2 U.S. sales spot in August; Honda inched past Chrysler into fourth.

But just as the party seems unstoppable, the high times might, in fact, be about over. If retired Fed chairman Alan Greenspan were noodling the auto business, he might be muttering "irrational exuberance."

"We expect September to retreat a little," cautioned Volkswagen Group of America CEO Jonathan Browning, a master at understatement, after VW announced sales Wednesday, foretelling the tone of others.

"Some might say we're back to the heady days of 2007 with the same kind of sales rate as in the pre-Great Recession era. To that we might caution 'Not so fast,' " says Jack Nerad, executive editorial director and market analyst at Kelley Blue Book.

What's up, why it might go down

-- Trucks, big and profitable, boomed in August. Ford sold more than 70,000 F-Series pickups, only the second time this year. Chevrolet's big-pickup sales rose 24.3 per cent even though it's just now getting the redesigned 2014 models fully launched. Chrysler's Ram standard-duty pickup jumped 31 per cent.

Commercial users buy a lot of the trucks, so that's a vote for optimism on the economy. But big pickups also are an indulgence among gentrified truckers, who fled their size and costs when the economy turned down. And just because business users hope the economy's got legs -- and helps pay for their new pickups -- that's no guarantee they're right.

-- Interest rates still are low, though in some arenas -- home mortgages are obvious -- they've begun to rise, slowing purchases. If the Federal Reserve decides the economy's sturdy enough to let them go higher, they could make car loans too expensive for some buyers. Or, the higher-interest loans could mean buyers take less-expensive cars, still bad news for automakers' profits.

-- Automakers are in tall cotton. "Incentives are down and transaction prices are up," says Fred Diaz of Nissan. More cars are selling because of "the age of the vehicles out there" and a boost in consumer confidence.

But so-called marginal buyers will start to re-enter the market, probably next year, GM execs pointed out. They won't buy such expensive cars and might demand bigger rebates.

-- Pent-up demand isn't satisfied. Not everybody who nursed a car through the recession has traded the old buggy for a new one yet. Some might never, deciding to keep the old one running or worrying about their jobs. It's not clear yet just what's the true, free-market level of auto sales and what's still a wave of leftover demand.

Sales rose last year, for example, even though the average age of vehicles on the road increased. Not a bad sign, but confusing.

"The overall economic recovery is weak and fragile, so another shock could send sales back," Nerad says. "The short-term outlook for the industry is good, but a more robust economy and better employment figures would turn caution into full-blown optimism."

-- USA Today

Republished from the Winnipeg Free Press print edition September 13, 2013 ??65530

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