Summer Auto Sales Stay Hot Despite Interest Rate Hike
The nation’s auto makers on Tuesday reported strong July sales of new cars and trucks as consumers continued to crowd into dealerships in the face of rising interest rates.
General Motors Corp., the nation’s No. 1 auto maker, reported a 62% increase in vehicle sales from a year ago, when much of its production was stifled by strikes.
Ford Motor Co. said sales were up 4%, and DaimlerChrysler posted a monthly increase of 13%. GM’s Detroit rivals, the nation’s No. 2 and No. 3 auto makers, respectively, benefited a year ago from the prolonged strikes.
Foreign-based auto makers, aided by a slew of new models, also saw sharp sales gains last month. Toyota Motor Corp.’s sales were up 14%, and Honda Motor Co. posted an increase of 8%.
Auto sales, healthy for the last five years, are being boosted by the nation’s buoyant economy and stock market, economists and industry analysts say. Although sales are expected to slow in the second half of the year, the industry is still expected to surpass the record of 16 million new vehicles sold in 1986.
Auto sales are typically sensitive to interest rate increases, but industry executives say recent increases are not sufficient to scare off consumers and will have minimal effect on monthly car-loan payments.
They say the economy’s fundamentals are still sound and that the outlook remains positive for the remainder of the year. Employment and wages are high, inflation is dormant and consumer confidence remains strong.
In addition, stiff competition has forced manufacturers to keep price increases in check and even to offer consumers incentives such as subsidized leases, cash rebates and cut-rate financing.
“It’s going to be a barnburner year,” said George Magliano, an analyst for WEFA Group, who has increased his sales forecast several times this year.
Still, many economists believe that the current sales pace, which is expected to hit a seasonally adjusted annual rate of 17 million vehicles in July, is unsustainable. They predict a gradual slowdown in the next several months.
David Littmann, chief economist at Comerica Bank in Detroit, said higher interest rates and gasoline prices, recent stock market jitters and reduction in mortgage refinancing activity will cause consumers to pare their spending on big-ticket items.
“The second half won’t keep up with the first half,” he said. “It won’t fall off a cliff, but there will be an incremental slowdown.”
Auto industry executives are more sanguine. James Holden, vice president of sales for DaimlerChrysler, argues that the traditional boom-bust model for the auto industry no longer holds. He said the popularity of leasing prompts 25% of new-car owners to buy a new vehicle every two or three years; he also points out that the number of three- and four-car families is growing.
“We don’t see any significant softening coming in the second half,” Holden said in a telephone briefing with reporters.
Wall Street responded positively to the sales reports, pushing GM up $1.19 to close at $63.06 on the New York Stock Exchange. Meanwhile, Ford gained 69 cents to $50.06 and DaimlerChrysler rose $1.31 to $76.06, also on the NYSE.
The July sales reports may assuage some investor concerns. DaimlerChrysler’s stock was hit with a severe sell-off last week amid flat second-quarter earnings.
But analysts said incentives are not unusually high and will fall as new models are introduced this fall.
GM’s results are skewed by strikes that severely disrupted its operations for 54 days last summer. The company sold 424,048 vehicles in July, compared to 261,140 a year ago. For the year, GM sales are up 7%, with car sales rising nearly 9% and light trucks--minivans, sport-utility vehicles and pickups--increasing 5%.
Sales at Ford--including its Lincoln, Mercury, Volvo and Jaguar brands--increased to 356,949 vehicles. Its car sales rose 10%, while sales of light trucks fell 4%.
DaimlerChrysler’s U.S. sales totaled 243,420 in July, dominated more than ever by SUVs, minivans and the Dodge Ram pickup. After softening in June, sales of Dodge, Plymouth and Chrysler minivans rose 8%; total light-truck sales rose 20%, overcoming a 15% drop in car sales. Mercedes-Benz sales jumped 62%.
