Automakers posted one of their best months in years in July.
The car companies sold more than 1.4 million vehicles last month, a 9.1% gain from the same month a year earlier, according to AutoData Corp.
Most of the big automakers posted increases near 10% or better. Honda was the only major manufacturer to buck the trend with sales falling 3.9%.
The industry is on track to sell about 16.5 million vehicles this year, which would be the best showing since 2006.
The improving economy is behind the strength in the auto market, economists and automakers said.
“American families feel better about the economy than they have in a long time,” said Kurt McNeil, General Motors’ U.S. sales chief, on Friday.
The Labor Department reported Friday that employers added 209,000 positions to their payrolls in July. That brought the total so far this year to 1.6 million, one of the best periods for sustained growth in employment since the Great Recession.
The housing market also is on an upswing, becoming both a source of jobs and the consumer confidence people need to be comfortable with big-ticket car purchases, economists said.
The Case-Shiller home price index, which measures prices in 20 major cities, was up 9.3% year-over-year in May. Housing starts were up 7.5% year-over-year in June and have risen in 10 of the last 12 months.
And although the Dow Jones industrial average has fallen slightly this year, broader market measures are up 4% to 5% as of the close of trading Friday.
All of this has brought “consumer confidence to its highest level since the recession,” said Lacey Plache, an economist at car shopping company Edmunds.com.
Also boosting sales were bigger discounts, sales incentive programs and continued low interest rates.
GM sold 256,160 vehicles in the U.S. last month, a 9.4% increase from a year ago. It was GM’s best July sales total since 2007.
Ford sales rose 9.5% to 211,467 vehicles in July, Autodata reported. That was Ford’s best July in eight years. Chrysler posted sales of 167,667 units, a 19.7% jump from the same month a year earlier and its best July since 2005.
Toyota’s U.S. sales rose 11.6% in July to 215,802 vehicles. Nissan had sales of 121,452 vehicles, an 11.4% rise and a July record. Hyundai also logged its best July ever, selling 67,011 vehicles, almost a 1.5% increase.
Sales rose in part because of a return of younger buyers to the new car market.
Generation Y consumers, those born between 1977 and 1994, accounted for 26% of new-vehicle retail sales during the first half of this year, up from 24% during the first half of last year, according to J.D. Power & Associates, the auto industry market research firm.
That put the group ahead of older Generation X buyers, those born between 1965 and 1976, for the first time, J.D. Power reported. Gen X buyers accounted for 24% of new car retail sales in the same period.
“As Gen Y consumers enter new life stages, earn higher incomes and grow their families, their ability and desire to acquire new vehicles is increasing,” said Thomas King, a J.D. Power vice president.
Still, baby boomers, born between 1946 and 1964, remain the largest group of new-vehicle buyers, accounting for 38% of sales during the first half of the year.
Meanwhile, GM’s massive recall scandal and the flood of recalls by other automakers have not dampened consumer enthusiasm for new vehicles. Automakers have recalled about 40 million vehicles this year, an annual record for the industry.
Despite setting aside billions of dollars to pay for recalls and payments to crash victims, GM squeezed out a small second-quarter profit and expects to be profitable for the year. GM sold more than 1.7 million new vehicles in the U.S. this year through July, up 3.5% from the same period last year.
This is happening despite investigations by the National Highway Traffic Safety Administration, the Justice Department and Congress into why GM waited a decade to recall 2.6 million small cars with faulty ignition switches linked to at least 50 crashes and 13 deaths.
Plache said the auto industry will sell about 16.4 million vehicles in the U.S. this year and upward of 16.5 million next year. Yet some analysts are asking how much gas is left to fuel rising auto sales.
Morgan Stanley analyst Adam Jonas said the industry is hovering at a “cyclical peak” and that it might be time for investors to start selling auto industry stocks.
“The U.S. auto cycle has clearly moved from a ‘need to buy’ to an ‘I just want to buy’ type of consumer mind-set,” Jonas said. “Forgive our contrarian instincts if this alignment of factors makes us want to head in the opposite direction.”
Automakers are gaining business now at the expense of future sales, he said. They are doing that through what Jonas calls “low monthly payment math.”
Through the end of July, auto loans written this year averaged more than 66 months — a record — and loans of 84 months or more now account for more than 5% of car loans, also a record, according to J.D. Power.
“You can’t underestimate how important dealer financing has been to this automotive recovery,” said Jessica Caldwell, an analyst at Edmunds.com. “It’s attractive enough when a dealer offers 0% APR, but now it’s more common to see 0% for as many as 72 months, which was virtually unheard-of not too long ago.”
That lowers what consumers spend in a monthly payment and allows them to purchase a more expensive car, but ties up their budget for a longer period and could lengthen the time between auto purchases.
Automakers are also inflating the estimated resale value of cars when they come off lease contracts in two to three years, a financial tool that creates lower monthly payments for consumers, Jonas said.
“Consumers buy cars like they buy houses — lower payment, bigger car,” Jonas said. “There is a dark side to all this.”