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Consumer Confidence, Pent-Up Demand, Easier Credit Drive 12% Vehicle Sales Rise

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(credit: Kevork Djansezian/Getty Images)

(credit: Kevork Djansezian/Getty Images)

mattroush Matt Roush
Matt Roush joined WWJ Newsradio 950 in September 2001 to spearhead the...
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DETROIT — The North American automotive market has been 2012′s economic bright spot amid the uncertain global scenario, according to Ernst & Young’s Global Automotive Center. Driven by improved consumer confidence, pent-up demand and easier credit availability, sales of light vehicles reached 17.13 million units, registering a growth of 12.5 percent.

Production in North America also continued to increase, with more than 95 percent capacity utilization observed for 2012. In line with demand, the production of small cars in North America has steadily grown during the past few years.

Light vehicle sales in the United States grew 13.4 percent, reaching 14.46 million units in 2012.

“Demand remained strong throughout the year as the average light vehicle age reached 11 years (a record high), the share of subprime loans grew to ease credit availability and the economic scenario improved,” said Mike Hanley, Global Automotive Leader at Ernst & Young. “Vehicle sales got another boost toward the year end, as customers rushed to replace their damaged vehicles in the aftermath of the Superstorm Sandy.”

As a result of the strong growth in new car sales, used vehicle prices continued to decline during the year. The share of subprime loans remained especially high in the case of used cars.

The growth in sales was accompanied by a change in the segment mix of vehicles. The preference of U.S. customers is shifting toward smaller cars, and as a result, the share of small-sized cars touched a historic high of around one-fifth of new car sales in 2012. The penetration of diesel cars also increased significantly (albeit from a low base) amid rising awareness of diesel as a clean fuel and a slew of new launches in this segment. However, diesel car sales made up less than 1 percent of 2012 volumes.

Dealer and automaker incentives last year were targeted for specific segments and vehicle models (such as high incentives in the luxury car segment), in a sharp contrast to the “across the board” discounts offered by automakers during 2008 and 2009.

Canadian light vehicle sales touched a 10-year high of 1.69 million units, due to the huge incentives provided by automakers and the pent-up demand. As witnessed in the US, there was a shift in the consumer preference toward smaller, fuel-efficient cars in Canada. Luxury car sales also saw a jump during the year as a result of the high demand from baby boomers and increased incentives by automakers. On the other hand, the strong Canadian dollar continued to hinder new investments in production.

In Mexico, light vehicle sales grew by 9.52 percent to touch 0.98 million units as a result of the improved economic scenario and easy credit availability. In terms of production, the country witnessed a record year with volumes of 2.9 million units and capacity utilization well over 100 percent. This is a direct result of the increased demand from the U.S. and Mexico offering a much lower cost of production than its North American neighbors.

Moving into 2013, the outlook for the North American automotive market remains cautiously optimistic.

“While overall uncertainty over the ‘fiscal cliff’ has abated, concerns remain about the resulting spending cuts and other government programs that could increase personal and corporate taxes,” said Hanley.

The U.S. market is likely to close the year with moderate sales growth driven by replacement demand and a significant number of new vehicle launches. The market will continue its steady movement toward achieving the pre-recessionary sales level of 16-17 million units.

While the Canadian market is also likely to register marginal growth in 2013, there is a strong possibility it will surpass the 2002 record high. Sales of luxury cars in the country are anticipated to grow at a significant pace over the near to medium term.

The outlook for the Mexican market is also moderately positive. Being an export-oriented economy, the scenario is also dependent on the way the U.S. and other major global economies perform this year.

For more information on Ernst & Young’s Global Automotive Center, visit www.ey.com/automotive.

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