August Expected To Be Break-Out Car Sales Month

As a challenge to wisdom that the economy has slowed to a halt, U.S. car sales are expected to reach a four-and-a-half year high when August numbers are released. According to J.D. Power,

August new-vehicle retail sales are projected to come in at 1,066,200 units, which represents a seasonally adjusted annualized rate (SAAR) of 12.3 million units. The year-over-year growth rate in retail sales continues a double-digit trend for a fourth consecutive month. Retail transactions are the most accurate measurement of true underlying consumer demand for new vehicles.

That would put the pace well behind the heady years in the mid-2000s when the annual figures were over 15 milllion. But, car companies have cut enough costs so that the present level of sales keeps their North American operations profitable.

There is no ready explanation for why sales can be so high when forecasst of GDP growth and consumer confidence are so low. Perhaps the only convincing argument is that the average age of an American car still on the road is ten years. Even modern, extremely well built cars begin to feel their ages at some point.

North America is the only pillar still standing for manufacturers which do not have large market share in China, which is now the world’s largest nation by car and light vehicle sales–although the pace of growth there is frozen. Many manufacturers are bleeding money in Europe. This is particularly true of GM (NYSE: GM) which has not been able to repair its Open unit which has to overcome the power of local unions and governments which do not want to see any more increases in unemployment

The largest beneficiary of the strong American market this year has been Toyota (NYSE: TM) which has had a rebound of manufacturing capacity hurt by the Japan earthquake. But, the rising tide of U.S. sales has lifted almost all boats

Douglas A. McIntyre