One reason for fading sedan sales: low wage growth

Americans are shunning new cars. They prefer to buy light trucks – crossovers, SUVs and pickups – especially when gas prices are low.

That’s the conventional wisdom, and it’s true. But it’s apparently not the only reason car sales fell 9.6% last year, and declined 11.5% in March compared with the same month a year earlier, even as sales for light trucks soared.

Wage growth, or the lack of it, is a contributing factor, especially for low-wage earners and first-time vehicle buyers, who tend to be millennials just starting out in their careers. New cars can be out of reach for many of them, especially when you consider that the average new car buyer earns more than $80,000 a year, said Steven Szakaly, chief economist at the National Auto Dealers Assn.

That’s driving some customers out of the market for new vehicles.

Wage growth has risen steadily since the Great Recession, but wages for low-skilled workers has seen the slowest growth. Furthermore, the gap between low-skill and high-skill workers lately is growing wider, according to the Federal Reserve board. Low-skill wage growth was tracking at an annual rate of 2.9% in February; for high-skill workers, 3.8%.

“Wages have not kept pace with some of the rise in prices,” Szakaly said.

The pressure on buyers might get tighter if the Federal Reserve continues to raise rates and make auto loans more expensive.

The recently announced 1.7% decline in overall vehicle sales year over year for March has created more anxiety about whether the industry is headed into a cyclical downturn.

Vehicle sales in the U.S. overall are slowing after last year’s record 17.55 million units sold. The dealer organization forecasts 17.1 million this year – which, it notes, is a historically healthy number, even if sales are down.

The lower unit sales are compensated somewhat by customers’ increasing appetite for more options, including auto-assist features such as adaptive cruise control and lane keeping. The options tend to be most popular on more expensive vehicles, which already translate into higher profit margins for automakers.

Dealer lots are packed with sedans that are moving slowly even with richer-than-usual incentive packages. But Szakaly expects carmakers to shut down some car production and add more light truck production to bring supply and demand back into line.

russ.mitchell@latimes.com

Twitter: @russ1mitchell

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