When Winter Clears, We’ll Know if 2014 is Going to Be Good for the Auto Industry or Not

Automakers reported that they sold a total of 15.6 million cars and trucks last year in the US. It was the highest sales volume in years since the 16.1 million vehicles sold in 2007. Already two months into the year, the outlook seems alright, especially since the weather has hampered auto sales but they’ve remained steady. However, January and February sales were a bit lower than usual because of the cold weather (3 percent year-over-year decline in the US in Jan. 2014). Seriously though, who would want to be out in a huge car lot every day in these low temperatures anyway? According to an analyst from Edmunds, “It seems like things, from a metric standpoint, are going back to pre-recession levels of what we consider healthy.” Clearly it’s because last year was such a good one for the automotive industry. Will that successful trend continue into this year? Edmunds further predicts that the seasonally adjusted annualized rate (SAAR) will be 15.6 million units for 2014. J.D. Power & Associates and LMC Automotive seem to think it’s in fact going to be 15.9 million units instead. The latter estimate is up more than half a million from last year’s reported 15.2 million. Of course, the market could still shift for the worst causing sales to plummet. We should know by March if this is going to be a good year, or a bad year for the car industry. It actually has absolutely nothing to do with the current weather, and everything to do with the surplus inventory. Automakers like GM and Ford would have been operating under the assumption that the January SAAR was still at 15.8 million. That means most dealerships probably had anywhere from a 72-100 daily supply of new vehicles. If those vehicles don’t sell, especially when the new models come to town it is going to be a pretty hefty loss all around. Nick Bunkley of Auto News seems to think the same thing. A relatively high surplus of unsold vehicles could spell disaster over the coming year, especially if the parties involved don’t adjust their inventories accordingly as time goes on. The numbers could just keep piling up turning what should have been a good year into a bad one. Several companies are adjusting their strategies to attract new customers. One of the biggest manufacturing strategies is to offer more effective fuel economy features. Others are instead shifting their main production facilities to cheaper regions in terms of cost. For example, pulling out of North America and Europe and moving to China, India or South America is a common tactic. It makes sense then why the Australian car industry is slowly dying, if it hasn’t already. Ford and GM both pulled out of the country, and Toyota is expected to do the same soon.

Why Did Last Year See a Sales Surge?

In Aug. 2013 the average age of vehicles on US roads was 11.4 years. That is a remarkably high number, but according to forecasts from IHS Automotive the number is expected to increase to 11.5 by 2018. It goes without saying that 11 years is a very long time to own a vehicle. That age directly results in a higher demand for cars, as owners move to replace their old ones. It doesn’t hurt that economically things are improving, so banks are offering more loans and lower interest rates. Naturally, all of this combined with lower gas prices means that consumers are more open to purchasing new vehicles. Will these trends continue over the coming year? Analysts sure seem to think so, despite a slow first few months. Genuinely, it only looks like time will tell.