J.D. Power Expert Outlines Key Forces behind U.S. Sales Growth

Deirdre Borrego presents auto industry outlook at J.D. Power Automotive Marketing Roundtable “The U.S. auto industry has enjoyed remarkable revenue growth this year,” Deirdre Borrego, J.D. Power vice president of client services, said during a presentation at the October J.D. Power Automotive Marketing Roundtable (AMR) in Las Vegas, NV. “From a consumer standpoint,” she said, “there are specific market forces that have kept sales strong and transaction prices high.” Borrego pointed to four key drivers:

• Long-term loans are a key enabler. Nearly one in three 2013 sales to date was facilitated by a loan of 72 months or longer. Extended terms, combined with. . .

• . . . Low interest rates have allowed consumers to buy a richer mix of vehicles while keeping their monthly payment within their household budget.

• Strong residuals enable manufacturers to offer attractive leases to consumers, again with desirable monthly payments.

• Tight used-vehicle supply is another key factor. The average price of a used vehicle increased by roughly $3,000 since 2008 to reach $18,800 so far this year. This drives stronger in-equity positions for existing owners, improving purchasing power or removing barriers to entry.

What about the future—can the exceptional growth rate be sustained?

• J.D. Power’s current retail auto forecast calls for nearly 13.2 million units in 2014—that’s an extra 340,000 sales versus 2013—with 13.5 million retail sales expected in 2015.

• The outlook calls for continued transaction price strength, albeit at a slower pace of improvement. Transaction prices should grow from current levels of $29,200 in 2013 to just under $30,000 in 2015.

• At these levels, total consumer expenditures will rise to $389 billion in 2014 and to $399 billion by 2015.

Manufacturers will continue to face new challenges in their quest for sales and market share growth while maintaining high transaction prices. Finding opportunity in changing buyer profiles—especially with the growing importance of the Gen Y buyer—will continue to present a formidable challenge. The flattening growth trajectory of U.S. sales will also test leadership focus; there’s always a risk that the industry will again focus on the short-term at the expense of long-term health. All in all, Borrego concluded that success in the U.S. auto industry will be dependent upon striking the right balance with regard to short-term and long-term performance.

 

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