RAMSEY, N.J., June 1, 2018 (Newswire.com) - Demand for new vehicles rose to its highest level of the year in May, fueled primarily by strong consumer confidence among Americans, generous discounts, and the ongoing shift in consumer preferences from sedans to larger utility vehicles. This month, TechnoMetrica’s Auto Demand Index gained four points, or four percent, to a reading of 104, marking the third straight monthly gain in the measure, and its best performance since December 2017. As a result, we anticipate that auto sales will remain sizzling as the summer season commences.

TechnoMetrica Market Intelligence developed the Auto Demand Index, or ADI, as a way to measure the intent of consumers to buy or lease a new vehicle within the next six months. Raghavan Mayur, president of TechnoMetrica, explained that the ADI, which is conducted monthly, is based on the response to a key question posed to more than 900 adult Americans: How likely is it that you will buy or lease a new vehicle within the next 6 months?

New vehicle sales have maintained a healthy pace of growth this year, despite recent fluctuations in auto sales. For instance, while sales fell 5 percent year-over-year in April, following a robust 6.3 percent gain in March, the annualized sales rate has remained above 17 million for eight consecutive months. Through April, auto sales are up approximately 0.2 percent this year.

The strength in U.S. vehicle sales has been reflected in the ADI’S performance over the last few months. After falling to a 6-month low in February, our purchase intent measure has grown for three straight months, surpassing 100 for the first time this year in May. This upward momentum in the Index signifies the strong levels of vehicle demand that Americans continue to exhibit, as more consumers look to replace autos they acquired at the end of the last recession.

Americans’ intent to purchase new vehicles is likely to grow further in the near future, as the Index’s three-month average registered its first gain since November 2017, climbing five points to a reading of 99. Meanwhile, the longer term 12-month average remained unchanged at 99. In addition, our indicator for momentum, the MACD, improved 0.9 points to a score of -0.4, its largest gain since last December.

“Consumers are encountering a favorable environment for vehicle purchasing: the labor market is booming, incomes are rising, and incentives remain at high levels. It is not surprising, therefore, that Americans, buoyed by a strong economy and bigger wallets, continue to report strong demand for new vehicles,” said Raghavan Mayur, president of TechnoMetrica.

A majority of demographic groups reported higher levels of auto demand this month, as consumers across a variety of segments see larger incomes due to tax cuts and a tightening labor market. In May, vehicle purchase intent grew among 13 of the 19 groups that TechnoMetrica monitors on a monthly basis, compared with 12 the previous month, and up from a mere two segments back in March. Parents of children under 18 years of age showed the most significant improvement in demand for new vehicles, gaining 20 points to attain a reading of 126. Demand also heightened among consumers earning more than $100K in annual income (119), with the income group posting a 17-point jump in the Index this month. In addition, Americans aged 25 to 44 (plus 15 points) recorded their first monthly gain in purchase intent this year, as prime-age men and women are encouraged by a strengthening labor market. This age cohort has reported consistently high levels of consumer confidence, according to the IBD/TIPP Economic Optimism Index. In fact, as of May’s reading, the 25-to-44 age group has posted an Index score in positive territory (above 50) for seven consecutive months.

Intent to acquire new vehicles also rose significantly among Americans residing in the Western (plus 12) and Mid-western (plus 11) regions of the U.S. In addition, consumers earning less than $30K a year posted their highest ADI score since April 2017, as the income group reported its second straight monthly gain in the Index.

Meanwhile, vehicle demand waned among five groups in May, with the 18-to-24 age group (minus 29 points) displaying the most significant drop in the ADI. However, with an Index score of 146, young adults continue to report the greatest levels of purchase intent. Americans aged 65 and over (minus 13) also showed a precipitous decline in auto demand this month, as the age cohort registered its lowest Index reading since January.

The recent acceleration in purchase intent has largely been driven by Americans’ brightened sentiment towards the economy and their own financial circumstances. The IBD/TIPP Economic Optimism Index, our monthly measure of U.S. consumer confidence, has hovered in positive territory (above 50) for a record 20 consecutive months, indicating consistently strong levels of consumer sentiment. It is not surprising, therefore, that economists expect GDP growth, which slowed in the first quarter of 2018, to pick up speed for the remainder of the year, nearing the administration's target of 3 percent economic growth. In addition, our national gauge of stress regarding personal finances, the IBD/TIPP Financial-Related Stress Index, fell to an all-time low of 49.9 in May, signifying Americans’ improved outlook for their financial situations.

Heightened vehicle demand can also be attributed to a stronger labor market. Employers continue to add jobs at a brisk pace, as the economy has averaged around 200,000 new payrolls per month in 2018. Over 3 million new jobs have been created since the election of President Trump, including 363,000 construction jobs and 316,000 new jobs in the manufacturing sector. In comparison, throughout the entire presidency of Barrack Obama, the economy shed more than 300,000 manufacturing jobs. At the same time, the job market continues to tighten as it edges closer to full employment. In April, the unemployment rate dropped to a 17-year low of 3.9 percent, while jobless claims fell to their lowest level since December 1969.

Labor market tightening, coupled with a shortage of skilled workers, has helped spur a rise in incomes, as employers offer higher wages to attract and maintain workers. The tax cuts approved in December are also boosting Americans’ take-home pay. Government estimates suggest that around nine in ten taxpayers are seeing larger paychecks due to the new tax reform law, which cut individual tax rates virtually across the board and reduced the corporate level from 35 percent to 21 percent. As a result, disposable personal income grew 6.2 percent in the first quarter, up from a rate of 3.8 percent during the fourth quarter of 2017. Thus, with more money flowing into their wallets, consumers are likely to increase their spending on discretionary products, including big budget items such as automobiles.

Prospective vehicle buyers are also getting assistance from robust discounts and persistently high incentive spending. Through the first five months of 2018, incentive spending has increased $128 from the year before to a rate of $3,898 per vehicle, according to data from J.D. Power and LMC Automotive. In addition, Memorial Day sales events, which mark the beginning of the summer season for the industry, entice buyers to dealerships with generous deals on new autos, as dealers begin making room on their lots for upcoming 2019 model vehicles.

Based on our analysis of consumers’ preferences for various types of vehicles, SUVs remain highly popular among American drivers. In this month’s study, nearly one-third of likely buyers (30 percent) say they plan to acquire either a small SUV or a large SUV as their next vehicle purchase. Consumers are also enamored by mid-size vehicles, as the preference for this type rose for the third straight month, to a 21 percent share of prospective buyers, the largest since October 2017. Demand for pickup trucks improved slightly in May, to a share of 14 percent, a one-point gain from the previous month. Meanwhile, consumers continue to hit the brakes on plans to acquire compact cars. After declining four points in April, preference for compact vehicles dropped a further two points this month, to a share of eight percent.

The Auto Demand Index study also gains insight into Americans’ favorite vehicle brands. For the second month in a row, Ford claimed the top spot in brand preference, garnering a 14 percent share of likely buyers, a one-point gain from April. An identical share of consumers (11 percent) chose Honda, Toyota, and Chevrolet for their next new vehicle purchase. Demand for Chevrolet vehicles dropped two points from last month, while the share of shoppers favoring Toyota grew by one-point, from 10 percent in April. Meanwhile, preference for Dodge improved one point in May, to a share of 5 percent, marking the second straight monthly gain for the brand.

Each month, TechnoMetrica uses Random Digit Dial telephone methodology to conduct live interviews with more than 900 respondents, using both landlines and cell phones. The margin of error for the survey is +/- 3.2 percentage points. In addition, recent statistical analysis has shown a strong correlation between the Auto Demand Index and actual U.S. vehicle sales.

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