Car Sales Soar Even as Gas Prices Do, Too

Analysts say pent-up demand has primed the pump for a banner year in auto sales

By DANIELLE KURTZLEBEN

April 3, 2012 RSS Feed Print

After years of putting it off, Americans are done waiting. They're ready to buy new cars, and even high gas prices aren't going to deter them.

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Today, Chrysler announced that its March auto sales were up by 34 percent, and other makers also posted positive numbers: General Motors' March sales were up 12 percent, and Ford was up 5 percent. Altogether, car sales look set for a strong year. Truecar.com, an auto price-tracking website, forecasts the best sales quarter since 2008, as well as a total of 14.5 million cars sold in 2012.

Gas prices can take a heavy toll on auto sales, yet with costs moving toward $4 per gallon in the midst of a fragile recovery, consumers seem compelled by other forces.

"We don't have that knee-jerk reaction that consumers had in the past to gas prices. The reaction in March was a lot more subdued and not as dramatic," says Jesse Toprak, vice president of Industry Trends and Insights for TrueCar.com.

Instead, a confluence of other factors helped to push auto sales to healthier levels.

One was pent-up demand. According to Toprak, Americans put off buying cars during the recent recession and are now coming out to make up for it. That magnitude of delayed purchases could mean elevated auto sales for more than a month or two.

TrueCar estimates that "normal" annual car sales are around 15 million, Toprak explains. "So if you add up all those units that we didn't get to, that were below 15 million for the last several years, we have several more million units to go just to make up for it."

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Added to that is a generally improving economy, with jobs and GDP posting stronger numbers in recent months. According to Robb Granado, analyst at financial information company Sageworks, strong growth throughout the auto supply chain suggests that something more than a temporary bump in demand is at work.

"The strong growth in sales we see shows that there's probably something more than just displacement from the downturn," says Granado. "It's potentially improved sentiment, and people are more comfortable making those purchases."

Gas prices are coming into play for consumers: rather than deterring potential buyers, they instead appear to be affecting buyers' choices. General Motors said that its 12 percent bump included 100,000 vehicles that get 30 or more miles per gallon of gas. Its small and compact car sales were up 62 percent. Sales of the plug-in Chevrolet Volt hit their highest level ever last month, at 2,289.

One more promising trend also underlies the positive March sales numbers. Not only are Americans buying more cars--they don't have to be coaxed into it. Even though the average transaction price for new cars was up by 6.9 percent in March over the previous year, incentives declined, by 1.8 percent.

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For auto manufacturers, says Toprak, "selling more cars with less incentives, that's your ultimate goal. That shows that you're selling the product, that you're not selling the incentive."

The point may be that while Americans are spooked by high gas prices, they are now willing—and financially able—to make a longer-term investment to deal with volatility at the gas pump.

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