RAMSEY, N.J., January 30, 2019 (Newswire.com) - New vehicle demand hit the accelerator this month, as a booming economy and rising incomes, combined with tax cuts and low gas prices, leave more Americans feeling financially flush. TechnoMetrica’s Auto Demand Index climbed 10 points, or 10.4 percent, in January to a score of 106, marking the first monthly gain since August. An Index reading of 100 or higher indicates strong levels of purchase intent among U.S. consumers. Thus, we anticipate that auto sales, after capping its fourth best year on record, will carry their robust performance into the new year, as prospective buyers look to spend their higher wages and recent holiday bonuses on the acquisition of a new vehicle.

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?

Auto sales revved up in 2018, despite concerns over rising interest rates and global trade disputes. Buoyed by low unemployment and larger paychecks due to the 2017 tax law, consumers rushed to dealerships throughout the first half of 2018. As a result, new vehicle sales jumped two percent between January and June, compared with a two-percent drop during the same period in 2017. And although sales underwent a correction of sorts for much of the remainder of 2018, they ended the year with a bang: The industry posted impressive sales of 1.64 million vehicles in December, the second best month of the year. Overall, the industry reported annual vehicle sales of 17.33 million units for 2018, according to Automotive News, a 0.6-percent gain from 2017, and just shy of the all-time high of 17.55 million set in 2016.

The ADI has accurately reflected this persistent strength in vehicle demand. For instance, our Index has reached a score of 100 or above in 10 out of the last 13 months, hitting a record high of 131 this past August.

Thus, this month’s rebound in purchase intent suggests that auto demand will remain robust in the months ahead, supported by the growing desirability of larger vehicles such as SUVs and pickups. Over the years, an improving economy and lower gas prices have encouraged a shift in consumer preferences away from traditional sedans towards more spacious and comfortable light truck offerings, particularly SUVs. In 2018, light trucks accounted for 69 percent of overall new vehicle sales, up from a 48 percent share a decade ago. As incomes rise and gas prices stay relatively low, consumers should continue to show a strong preference for larger vehicles. In fact, the automotive research site Edmunds projects that SUVs and crossovers will account for about one in every two vehicles sold in 2019.

However, the auto industry will be facing some headwinds that could potentially dampen consumer demand. For instance, the tax cut stimulus, which boosted Americans’ spending power in 2018, is beginning to wane and, with the Democrats having regained control of the House recently, a second edition of the tax cuts is not likely to happen any time soon. In addition, worries over Washington gridlock and the future sustainability of strong economic growth may lead to a cooling in consumer confidence.

As a result, it is not surprising that trends in the Index’s moving averages indicate that auto demand, though strong, may temper somewhat in the near future. While the 12-month average remained unchanged from December, the shorter-term three-month average fell to its lowest level since May 2018. Further, the short-term moving average dropped below both the six-month and 12-month averages for the second month in a row, suggesting that momentum for vehicle purchase intent may slow down in the coming months.

Still, a deeper sense of financial security among consumers amid a booming economy should be enough to sustain current levels of auto demand, according to Raghavan Mayur, president of TechnoMetrica.

“Consumers are brushing off ongoing concerns over trade disputes and stock market volatility as they see their financial fortunes improve significantly. Rising incomes, tax cut benefits and low gas prices are leaving consumers flush with cash, thereby boosting their spending power. As a result, we expect auto sales to maintain momentum in the months ahead,” said Mr. Mayur.

Looking at purchase intent by demographic group, demand for new vehicles remains high among a majority of segments this month.  In all, 12 of the 19 groups that TechnoMetrica monitors each month posted an Index reading above 100, up from 11 in December.

Parents reported the highest levels of intent to purchase new vehicles, with a score of 141, marking the segment’s best performance since September 2018. Research suggests that parents may be leading the charge in the shift to larger vehicles. Close to half of parents (45 percent) were driving an SUV or a truck as their primary vehicle in 2017, according to data from CivicScience. In comparison, only a third (33 percent) of non-parents drove these types of vehicles. As large capacity vehicles, SUVs are seen as an ideal option for parents who have to get their children to school and a multitude of extracurricular activities on a daily basis. Further, more parents are buying SUVs for their driving-age children for safety reasons. Over the years, the Insurance Institute for Highway Safety, a non-profit group that provides safety ratings for vehicles, has advised that parents consider putting teens in larger vehicles rather than traditional sedans, reasoning that “bigger vehicles provide greater protection."

The African American and Hispanic segment also displayed strong demand for new vehicles, reflecting improved employment and income prospects within the two minority communities. Purchase intent among this cohort picked up nine points to an ADI reading of 132, the highest since October 2018. Amid a tightening labor market, employers are tapping into traditionally overlooked groups in order to fill positions. Accordingly, more minorities are starting to reap the benefits of a strong economy, as unemployment among both Blacks and Hispanics hit record lows in 2018. In fact, between the fourth quarters of 2017 and 2018, unemployment dropped at a faster rate among African Americans than any other race demographic in the U.S. According to the Bureau of Labor Statistics, the Black unemployment rate in the fourth quarter of 2018 fell 13 percent from the same period a year earlier, compared with a nine percent decline among Hispanics and the six percent drop exhibited among Whites.

In addition, vehicle purchase intent remains robust among higher-earning Americans with an income of $100,000 or more (131), as well as middle-income households making $50,000 to $100,000 a year (116). January marks the 16th consecutive month in which the $50,000 to $100,000 income cohort has posted an Index score of 100 or higher. A combination of tax cuts and a strong economy have lifted incomes across the board, leaving Americans with more money to spend on previously out-of-reach items, such as automobiles. For instance, the 2017 tax reform bill, which cut rates for virtually all income brackets, boosted take-home pay for 90 percent of American workers. Recent analysis by Sentier Research determined that median household income reached an all-time high of $63,544 in November 2018, more than three percent higher than the year before.  

Despite the strong demand exhibited by most U.S. demographic groups, 12 segments showed declines in the Index this month. Midwestern consumers reported the most significant waning in purchase intent, posting an 18-point drop to a score of 111, its lowest since September 2018. The ease in demand among Midwesterners is primarily due to anticipation of a rough winter ahead. In the second weekend of January, a major storm that prompted winter storm warnings for millions of people in the Ohio River Valley and Mid-Atlantic regions dumped as much as 20 inches of snow in parts of the Midwest and left at least nine people dead. A recent decision by GM to cut more than 14,000 jobs and idle five North American facilities, three of which are located in Michigan and Ohio, may have also depressed purchase intent levels in the Midwest.

The Midwest wasn’t the only region to see a slowdown in vehicle demand this month. The Northeast segment displayed a five-point dive in the ADI, as the region recorded its lowest Index score since May 2018, at 109. Frigid temperatures, in addition to the evaporation of New Year deals, may be discouraging some Northeasterners from making the trek to car dealerships. Purchase intent also decelerated among households earning less than $30,000 a year (minus five points), as rising vehicle prices lock some consumers out of the market. The average sticker price of a new vehicle hit a record $35,957 last month, up two percent from the year before, according to Edmunds. In comparison, the average new vehicle in December 2013 was priced at $32,890, a nine percent difference.

Meanwhile, five demographic segments showed positive gains in the Index this month. The western U.S. reported the greatest upswing (plus 12 points) in intent to purchase a new vehicle, likely due to increased replacement demand as a result of the recent wildfires in California. November’s Camp Fire, the deadliest wildfire in California history, resulted in over $16 billion worth of damages. In addition, minimum wage workers in California are anticipating greater take-home pay in the new year, as the state’s minimum wage for companies with 25 or more employees increased from $11 to $12 an hour starting Jan. 1.  

Consumers residing in urban areas also displayed higher levels of vehicle purchase intent, posting a seven-point gain in the ADI this month. Major U.S. cities are seeing faster income growth than more rural areas, as high-paying tech jobs become more concentrated in metro areas. According to a 2017 analysis by the Brookings Institution, nearly half of all digital service jobs are concentrated in 10 of the nation’s largest cities, including New York, San Francisco, San Jose, Boston and Dallas.

Americans’ increased appetite for new vehicles has been supported by an economy firing on all cylinders. Economic growth picked up speed in 2018, fueled by tax cuts that poured more money into consumers’ pockets, thereby boosting consumption. The economy expanded at a stellar 4.2 percent annual rate during the second quarter, its best performance in four years. Economic growth maintained a solid pace into the third quarter of 2018, as the GDP increased by 3.4 percent between July and September, marking the strongest back-to-back quarters of growth since 2014. Overall, GDP growth is expected to have reached three percent for the entire year, which would be the highest rate since 2005.

A strong job market has also fostered a favorable environment for vehicle purchasing. The economy added a total of 2.64 million new jobs in 2018, the best annual gain in three years. U.S. employers closed out 2018 with a hiring spree, adding 312,000 new payrolls in December, a 10-month high. In addition, the labor force participation rate, which signifies the share of American adults working or looking for work, increased from 62.9 percent to 63.1 percent last month, the highest level since September 2017, as more Americans left the sidelines to reap the benefits of a booming labor market that is gushing forth better-paying jobs. Meanwhile, the unemployment rate hovers near historic lows. Last year, unemployment fell below four percent for the first time since 2000, reaching a 49-year low of 3.7 percent in October.

A tight labor market is translating into stronger wage growth, boosting consumers’ spending power. With the number of job openings outpacing available workers across all U.S. regions, employers have been compelled to lift wages in order to fill critical positions. As a result, hourly earnings are growing at their fastest rate in a decade. In December, wages rose at an annual rate of 3.2 percent, the largest gain since 2009. Further, wage growth is eclipsing inflation, which increased at its slowest pace in more than two years last month. Thus, as consumer prices fall, Americans are keeping more of their hard-earned pay.

Falling prices at the pump represent another tailwind for new vehicle demand. Supported by lower oil prices and the seasonal switch to cheaper winter fuel, gas prices exhibited their lowest start to the New Year since 2016. According to AAA, the average cost of gas hit $2.25 a gallon between Jan. 1 and 3, a 10-percent drop from the same period in 2018 ($2.49) and a decline of four percent from 2017 ($2.35). In addition, nine states reported gas prices below $2 a gallon at the end of December, which represents 20 percent of U.S. states. Low gas prices should continue delivering more savings for American consumers into 2019, as Moody’s expects the average U.S. household to save $224 to $480 on gas this year.

Low fuel costs are a driving force behind consumers’ growing preference for trucks and SUVs, which have quickly usurped sedans as American’s favorite vehicle types. In 2018, sales of traditional passenger vehicles plunged 13 percent from the year before, marking the segment’s fifth straight annual decline. Between 2013 and 2018, the passenger car market share has dropped from around half of all auto sales to a record low of 30 percent. Meanwhile, light truck sales climbed nearly eight percent in 2018 to a total of 11.98 million units, a feat that traditional cars have never reached.

SUVs are particularly popular among consumers. Last year, utility vehicles accounted for 46 percent of overall sales last year, the highest share of any vehicle type. Our study, which gauges consumers’ preferred genre of vehicles, indicates that the ongoing migration towards SUVs will continue into the near future. In January, the three-month average for SUV demand rose from 32.9 percent in December to 38.1 percent this month, a 16-percent bounce.    

While low gas prices continue to fuel SUV sales, they are stalling demand for electric vehicles. Sales of electric vehicles may face further headwinds as federal tax credits begin to phase out for some manufacturers.

Consumers are also rushing into the market in order to avoid higher prices as a result of additional interest rate increases. The Federal Reserve hiked interest rates four times in 2018, thereby making borrowing more expensive for many Americans. According to Edmunds, the average loan for a new car surpassed $32,000 in December, compared with $26,000 back in 2010. In addition, the average monthly loan payment reached a record high of $523 during the third quarter of 2018, as per a recent study from Experian. As a result, some consumers may be speeding up their auto purchasing plans before prices get even more out of reach. Hence, our study found that nearly one in five likely buyers (19 percent) plan to acquire a new vehicle within one month’s time, the most since November 2017.

Aside from monitoring vehicle purchase intent, the ADI also gains insight into Americans’ most preferred auto brands. Toyota and Ford took the top spot, with each garnering a 14 percent share of consumers. Preference for Toyota improved three points from the previous month, reaching its highest level since July 2018. Chevrolet came in third with a 10 percent share of the market, a one-point drop from December. Meanwhile, demand for Honda held steady at seven percent, the brand’s lowest preference share since last June. Rounding out the top five was Nissan, the brand choice of five percent of likely buyers.

Demand for luxury vehicles picked up in January. Close to one in five (18 percent) likely buyers plan on purchasing a luxury vehicle within the next six months, compared with 14 percent in December. This is the largest share of likely luxury buyers since August 2018.

Regarding consumer preferences for vehicle types, SUVs have overtaken mid-size vehicles as Americans’ style of choice. In January, close to a quarter (23 percent) of likely buyers plan on purchasing a small SUV as their next new vehicle, a five-point gain from last month. Mid-size vehicles were the preferred style of 16 percent of consumers, a decline of three points from December. Equal shares (15 percent) favored pickup trucks and large SUVs. Demand for pickups improved by two points from the previous month, while the preference share held by large SUVs remained unchanged. Full-size vehicles saw a slight deceleration in demand over the past month, from 14 percent to 13 percent.

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.

Please click here to read the original press release in Newswire.

Submit to DeliciousSubmit to DiggSubmit to FacebookSubmit to Google PlusSubmit to StumbleuponSubmit to TechnoratiSubmit to TwitterSubmit to LinkedIn