The Car Sales Comeback

Happy days are here again!

April new car sales were up 9% from April 2012; which doesn’t sound like all that much until you realize that the winning brands beat losing brands by a near 5 to 1 margin.

As for used cars sales, they are even better. Official stats for the used car market are always hit or miss. But with large dealer networks such as Sonic Automotive, Carmax, Group One, and Asbury Automotive all recording double digit used car sales growth, it’s safe to say that the overall market for late model vehicles remains healthy.

And for all that good fortune, you can thank one overwhelming force in today’s marketplace.

The stock market.

The S&P 500 returned over 13% in 2012, while the NASDAQ Composite returned nearly 16%. As of 2013, both of these broad indices have already offered comparable returns for what amounts to only four and a half months of market activity. The S&P is up 14.5% from January 1st while the NASADAQ has registered a 13.9% gain.

Now the naysayers among you may only consider these returns as a minor sixteen month flash in a sea of chronic unemployment and low GDP growth. Fair enough. That is a fair assessment if we are talking about the broad overall economy.

But the average American is not a frequent buyer when it comes to new or even late model cars. In a land of nearly 200 million licensed drivers and just over 15 million new car buyers a year, there are only so many people who have the means to spend what amounts to $31,356 on average for a new car. Or even half that amount, $15,800, which coincidentally happens to be the average pre-tax and bogus dealer fee price for a four-cylinder 2011 Camry LE with 38,000 miles according to Manheim Auctions.

So never mind those stats. Who is buying those cars?

Older people for the most part. The average age for a new car buyer has increased dramatically from 43 years old in 2007 to 52 years old in 2012. This contrasts with a painful contraction of a nearly 30% decline for 18 to 34 year old buyers, and a 25% decline for the 35 to 44 year old group according to Lacey Plache of Edmunds.com.

Late model cars are harder to track. So I will admit my perspective on that side of the market is only limited by the guys I converse with at the auctions every week.

According to a lot of the professional buyers and used car franchise operators at these sales, the young are widely considered to be the ‘gawkers’. While the older folks are coming with spouse, and sometimes even well aged kids of their own, to put a sizable amount of money down on an expensive car.

And why are older people buying those cars (and trucks)? Not just because they have the money. But because they now have the confidence to take what is often a $30k+ plunge in overall wealth.

Let’s look a bit closer into the recent rear view mirror that are the S&P 500 and the NASDAQ Composite. Specifically, there are three recent facts about these broad investment indices, that reflect a steady change in the confidence level of the older new car buyer.

• Both of these broad indices are up substantially from their pre-recession January 2008 numbers ( S&P 11%, NASDAQ 29%). A lot of folks who were able to buy and hold throughout this period now have even more money than before the sub-prime mortgage crisis.
• From 2009 thru 2012, both indices registered double digit annual growth for the entire time period with the exception all years except for 2011.
  
• That sole losing year only generated a net loss of .003% for the S&P 500 and 1.8% for the NASDAQ Composite. In otherwords, they were very small hiccups in what is now emerging as a five year period where annual market returns are finally becoming steady and healthy again.

Not a lot of people have the means to take that deep breath of patience needed to stomach the volatility that comes with a severe economic crisis. Pensioners rarely have a choice, while those with 401k plans have far better investing flexibility.

But guess who is winning?

Nearly everyone who has invested in domestic stocks, virtually all domestic bond fund investors, the overwhelming majority of dividend focused investors, international indices speculators of varying types. Even those fortunate souls who have the means to invest their free capital into a personal business are finding sustainable gains.

Those who have the money, are now making even more money.

If you make enough money over a long-term period, perhaps enough to erase your gains and secure your return, you may just decide to reward yourself with an expensive car.

This is what now drives sales for new cars and late model vehicles. At least until the job market recovers.