ARTICLE_DETAIL

How Predictions for 2014 Car Sales Impact Car Buyers

By: Jeff Youngs, 2/4/2014
According to Thomas King, Senior Director of Consulting & Analytics for J.D. Power, 2014 is going to be a record year for the global automotive industry. In the United States, however, the pace of year-over-year sales gains is predicted to slow, increasing competitiveness within an environment that has demonstrated significant gains in terms of product quality, dependability, appeal, and overall customer satisfaction since the Great Recession.

How does this business climate impact the consumer? King provided insights during a presentation at the recent J.D. Power 2014 International Automotive Roundtable.

Competitive Intensity Increases
According to King, every automaker wants to increase sales and market share, but J.D. Power predicts slower growth for 2014 compared with 2013. "Industry retail sales are expected to rise by 0.5 million units in 2014 vs. 1.1 million units in 2013, so brands can no longer assume sales growth," King said.

2.2M Lease Expirations in 2014
According to J.D. Power, 2.2 million existing leases will mature in 2014, and those consumers will need a new set of wheels.

Domestic automakers have gained market share in recent years, helped by new products and a return to normal operations post-bankruptcy, including the ability to lease vehicles at competitive levels. However, in 2014 domestic automakers will need to manage more than double the number of expired leases than they did in 2013. Retention of these customers--and retention of market share--will be extremely important to domestic brands.

Meanwhile, import brands will attempt to conquest these consumers while retaining the 1.5 million customers who are currently leasing an import-brand vehicle. Either way, the desire to retain existing consumers and conquest buyers of competing brands gives consumers leverage.

Leasing, Long-Term Loans Boost Car Sales
Low interest rates, longer-term loans, and subsidized leases increasingly fuel auto sales, allowing car buyers to purchase more expensive vehicles despite stagnant middle-class wages.

The average transaction price of a new car has risen from $25,500 in 2008 to a forecasted $29,700 in 2014. During that same period of time, leasing rates have increased from 18% to a forecasted 25% in 2014, and loan terms of 72 months or greater have increased from 23% to a forecasted 31% in 2014.

While the net effect of these trends has pushed monthly car payments down from $464 per month to a forecasted $455 per month, making vehicles more affordable in terms of monthly budgets, consumers must be wary of lease contract limitations and adding long-term debt in the form of even longer car loans for even more expensive vehicles.

Interest Rates Remain Low, For Now
Though outgoing Federal Reserve Chairman Ben Bernanke ended his term by continuing to trim U.S. economic stimulus, he took no action on interest rates. The Fed has promised that interest rates will remain low until unemployment falls below 6.5% and as long as inflation remains below 2%.

Currently, U.S. unemployment is at 6.7%, not including people who have dropped out of the workforce and given up on seeking a job. If you've been waiting to buy a new car and take advantage of low interest rates, 2014 is likely your year.

Greater Socio-Economic Diversity
Automakers and dealers are working with increasing numbers of Generation Y customers and sub-prime borrowers, and must adjust their products, sales approaches, and financial service offerings accordingly. The implication is that the brands which best meet the needs of a more diverse customer base are more likely to improve sales and market share.

As a consumer, don't be afraid to explore your options when buying a car. There are more of them available than you might assume.

Digital Empowerment
In addition to adjusting for a more socio-economically diverse buyer base, automakers and dealers must understand that car buyers continue to flock to digital platforms in order to conduct research, obtain advice, find a lender, and find a dealer. These digital and social platforms further empower consumers, though it is important to remember that you can't trust everything you read on the Internet, Facebook, or Twitter.

Save Money, Buy Used
According to J.D. Power, the average used vehicle will cost $19,300 in 2014, compared with the average new vehicle at $29,700. Considering that most automakers offer Certified Pre-Owned (CPO) vehicle programs to provide used-car buyers with added peace of mind, that financial institutions frequently offer low-rate financing for CPO vehicles, and that automakers are expecting 2.3 million leases to expire in 2014, buying a lightly-used vehicle could be a money-saving alternative for cash-strapped consumers.

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