New Vehicle Demand Zooms to a Record High Amid a Booming Economy

RAMSEY, N.J., September 1, 2018 (Newswire.com) - Consumers’ demand for new vehicles accelerated to its highest level on record in August, largely fueled by a roaring economy and rising disposable income. TechnoMetrica’s Auto Demand Index soared 27 points (26 percent) this month to a reading of 131, its best performance since TechnoMetrica began monitoring vehicle purchase intent back in February 2007. August also marks the fifth straight month in which the Index has recorded a score of 100 or higher, as more Americans, encouraged by greater take-home pay and generous end-of-summer deals, consider speeding up their vehicle purchasing plans amid prospects of rising interest rates and potential auto tariffs. Thus, we anticipate that auto sales will remain strong in the months ahead.

TechnoMetrica Market Intelligence developed the Auto Demand Index, or ADI, as a way to measure the intent of consumers to buy or lease a new vehicle within the next six months. Raghavan Mayur, president of TechnoMetrica, explained that the ADI, which is conducted monthly, is based on the response to a key question posed to more than 900 adult Americans: How likely is it that you will buy or lease a new vehicle within the next six months?

Buoyed by a strengthening labor market and higher take-home pay, consumers feel more confident in their financial situations and, thus, are allocating more of their income to big-budget items like new vehicles. Therefore, improved economic conditions in the U.S. have likely staved off a significant plateauing in auto sales, at least for the near future.

Raghavan Mayur, President of TechnoMetrica Market Intelligence

Recent trends in the Index’s moving averages provide further indication that new vehicle demand will continue to grow into the near future. All three averages improved in August, with the longer-term 12-month moving average posting its fourth consecutive monthly gain. In addition, our indicator for momentum, the MACD, rose 3.3 points to a score of 4.7, the highest since March 2016.

The heightened level of purchase intent among consumers reflects the strong performance of auto sales so far this year. Despite widespread expectations that sales would take a significant hit in 2018, the industry reported a two percent rise in new vehicle sales during the first half of the year, compared to a decline of two percent for the same period in 2017. In June alone, sales grew five percent from the previous year to an annual rate of 17.5 million vehicles, the highest of the year.

“Buoyed by a strengthening labor market and higher take-home pay, consumers feel more confident in their financial situations and, thus, are allocating more of their income to big-budget items like new vehicles,” said Raghavan Mayur, president of TechnoMetrica. “Therefore, improved economic conditions in the U.S. have likely staved off a significant plateauing in auto sales, at least for the near future.”

The recent surge in vehicle demand extends across nearly every demographic group, as more Americans boost their spending amid a strengthening economy. In August, 17 of the 19 groups that TechnoMetrica monitors each month posted an Index reading above 100, indicating robust purchase intent levels among a plurality of segments. African Americans and Hispanics reported the strongest demand for new autos, with an Index score of 153, the highest since November 2016. Both groups have seen an improvement in their job and income prospects in recent months. Hispanic unemployment is currently at an all-time low of 4.5 percent, while unemployment among African Americans continues to hover near historic lows.

Consumers residing in the northeastern U.S. are also displaying a strong intent to purchase new vehicles. This month, the cohort posted a reading of 149, an increase of 67 percent from August 2017. The rising vehicle demand among Northeasterners has likely been driven by increased incomes and greater employment opportunities in the region. For instance, a recent report from ADP Research Institute found that wages grew faster in the Northeast than in any other region in the U.S. over the past year. In addition, Northeastern unemployment fell 16 percent between May 2017 and May 2018, from 4.3 to a rate of 3.6, the lowest since December 2000.

Parents (141) and young adults aged 18 to 24 (139) continue to show a strong desire for new cars, as well. Despite their reputation for largely shunning vehicle ownership, Millennials have become a driving force behind the consistently strong growth in auto sales. According to research conducted by the credit reporting agency Experian, Generation Y accounted for all new vehicle sales growth in North America during the first quarter of 2018. While vehicle market shares for each of the older age cohorts either declined or remained unchanged from last year’s first quarter, Millennials saw their share of the new vehicle market jump in the first three months of 2018, from 27.9 percent to 29.7 percent.

In a further indication of widespread growth in purchase intent levels, our study found that 17 segments showed improvement in the Index this month, up from nine in July. Vehicle demand climbed most significantly among Northeasterners, who reported a 20-point surge in the measure this month. City-dwellers (plus 16 points) and consumers residing in the western U.S. (plus 15) also exhibited greater intent to acquire new vehicles. The entrepreneurial West Coast economy has been soaring in recent years, largely due to the thriving technology industry centered in the region. Unemployment in the West is at its lowest level on record, according to data from the Federal Reserve Bank of St. Louis.

An improved job market has also lifted vehicle purchase intent among the 45-to-64 age demographic, who recorded a gain of 13 points from last month. Earlier this year, the Federal Reserve reported that Americans 55 years old and over were responsible for all net job growth between 2000 and 2017.

The overall acceleration in Americans’ demand for new autos largely reflects a growing confidence in an economy that continues to surge ahead. Consumer sentiment is at its highest level in more 14 years, according to the latest reading of our IBD/TIPP Economic Optimism Index, as ordinary Americans brush off concerns over ongoing trade tensions amid improving financial circumstances.

It is not surprising, therefore, that confident consumers have been ramping up their spending in recent months. According to recent estimates from the Commerce Department, gross domestic product grew at an annualized rate of 4.2 percent during the second quarter of the year, the swiftest pace since third quarter 2014. The robust growth exhibited by the economy in the previous quarter was fueled by a surge in consumer spending, which clocked in at 3.8 percent, compared with a 0.5 percent rate during the first three months of 2018.

Americans’ rising spending power has been supported by a tightening job market, which is yielding higher wages. In August, unemployment fell to a nearly two-decade low of 3.9 percent, while the four-week moving average of jobless claims, a key measure of labor market trends reported by the Labor Department, dropped to their lowest level since December 1969. As the economy edges closer to full employment, businesses are faced with a short supply of skilled labor. Thus, employers have been steadily raising wages in order to attract and maintain workers. For instance, U.S. workers saw the largest increase in wages and benefits in nearly a decade during the second quarter, according to recent Labor Department data.

Higher pay, coupled with the new tax cuts, has lifted household income. Sentier Research, which tracks income data on a monthly basis, found that median household income hit $62,450 in July, the highest since January 2000. Hence, with more money flowing into their wallets, Americans are boosting their spending on discretionary products, including high-priced items such as new autos.          

Vehicle purchase intent may have also benefited from growing concerns over potential auto tariffs and rising interest rates. The administration is considering the possibility of imposing a 25 percent tariff on imports of autos and car parts, which could lead to hefty price increases for some foreign-made vehicles. According to a recent study from the Peterson Institute for International Economics, the price for an entry-level compact car would jump between $1,409 and $2,057 as a result of the proposed auto tariffs. Thus, in order to get ahead of a potential price jump, some prospective buyers are moving up their plans to purchase a new vehicle.

The prospect of additional interest rate hikes is also encouraging consumers to accelerate their vehicle purchasing plans. The Federal Reserve has already raised interest rates twice in 2018 and is expected to impose two additional hikes before the end of the year. Evidence suggests that rising interest rates are making auto loans more expensive. A recent report from Experian, for instance, found that the average loan amount for a new vehicle hit a record $31,455 in the first quarter, while monthly payments also soared to a record high during the same period.

The rising popularity of SUVs and pickup trucks is contributing to the rise in vehicle demand, as well. As consumer preferences continue to shift towards larger, more spacious vehicles, trucks and SUVs are steadily wresting control of the road from traditional autos. SUVs and pickups made up a record 68 percent of total auto sales in June, as the industry continues to see a decline in sales of new cars.

Consumers are also being enticed by robust discounts and incentives. Labor Day sales are among the most generous of the year, as dealers try to make room on their lots for next year’s models. For instance, according to the Associated Press, discounts on the highly popular 2018 Ford F-150, which averaged around $7,000 over the Memorial Day holiday, currently run as high as $12,000 in certain areas.

Aside from measuring consumers’ intent to purchase new autos, the Auto Demand Index also monitors their preferences for vehicle types. SUVs remain the most desired vehicles, with a 25 percent share of likely buyers, down from 28 percent in July. Demand for mid-size vehicles was unchanged from the previous month, at 20 percent. This marks the fourth straight month in which mid-size cars have garnered a preference share of 20 percent or higher. Also, for the fourth month in a row, 14 percent of prospective buyers say they would likely choose a pickup truck as their next new vehicle purchase. Compact cars were close behind with a 13 percent share of likely auto purchasers, a three-point jump from July. Meanwhile, preference for minivans continues to decelerate, hitting a six-month low of five percent in August.

When it comes to the brands consumers want, American-made vehicles top the list. Ford was the most preferred vehicle brand among prospective buyers this month, garnering a market share of 13 percent, a one-point increase from July. Chevrolet vehicles are also in high demand, as 12 percent of consumers say they would make their next auto purchase from this brand. An identical share of likely buyers would prefer a Toyota, down from 13 percent the previous month. Further, Toyota’s preference share is one point below its 12-month average (13 percent), indicating a slowing momentum in purchase intent. Meanwhile, demand for Honda dropped slightly to a still sturdy nine percent.

Each month, TechnoMetrica uses Random Digit Dial telephone methodology to conduct live interviews with more than 900 respondents, using both landlines and cell phones. The margin of error for the survey is +/- 3.2 percentage points. In addition, recent statistical analysis has shown a strong correlation between the Auto Demand Index and actual U.S. vehicle sales.

Source: TechnoMetrica