Automakers posted one of the best months in years for auto sales in July, with General Motors, Ford, Chrysler, Toyota and Nissan all reporting big gains.
By the time all the numbers are tallied Friday, automakers are expected to have sold around 1.5 million vehicles in July, up about 10% from the same month a year earlier, according to industry analysts.
FOR THE RECORD
Aug. 1, 1:18 p.m.: An earlier version of this post said the Dow Jones Industrial Average index has risen 2.7% for the year. It has actually fallen by nearly 1%. The percentage gains for the S&P 500 and Nasdaq indexes were also overstated.
General Motors Co. said it sold 256,160 vehicles in the U.S. last month, a 9% increase from a year ago. It was GM's best July sales total since 2007.
"American families feel better about the economy than they have in a long time," Kurt McNeil, GM's U.S. sales chief, said Friday.
Ford Motor Co. said its sales rose 10% to 212,236 vehicles in July, its best July in eight years. Chrysler Group reported U.S. sales of 167,667 units, a 20% jump from the same month a year earlier and its best July since 2005.
Toyota Motor Corp. said its U.S. sales rose nearly 12% in July to 215,802 vehicles. Bill Fay, Toyota division group vice president and general manager, attributed the gain to "rising consumer confidence."
Honda bucked the trend. Its U.S. sales fell 3.9% in July to 135,908 vehicles.
Nissan said it posted U.S. sales of 121,452 vehicles, an 11% rise and a July record. Hyundai also logged its best July ever, selling 67,011 vehicles, almost a 2% increase.
Bigger discounts and sales incentive programs, continued low interest rates and job growth are all helping to fuel robust car sales.
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 the stock market continues to roll despite a down day Thursday. The S&P 500 and Nasdaq indexes are up about 4.5% so far this year.
All of this has brought "consumer confidence to its highest level since the recession," said Lacey Plache, the economist at car shopping company Edmunds.com.
Another reason sales are rising is that younger buyers are coming back into the market.
Gen Y consumers – those born 1977-1994 -- accounted for 26% percent 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 cohort ahead of Gen X -- those born 1965-1976 -- for the first time, J.D. Power reported. Gen X buyers accounted for 24% of new car retail sales in the same period. But Baby Boomers -- born 1946-1964 -- are still the largest group of buyers of new vehicles, accounting for 38% of sales during the first half of the year.
"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.
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 crash victim payments, GM squeezed out a small second-quarter profit and expects to be profitable for the entire 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 in the face of investigations by the National Highway Traffic Safety Administration, the Department of Justice and Congress into why GM waited until this year to recall 2.6 million small cars with faulty ignition switches linked to at least 50 crashes and 13 deaths even though it knew about the problem for at least a decade.
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 mindset," 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 over 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 zero percent 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, 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."