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OUCH!! Auto Prices could increase by 10% in 2013


Hear that whooshing sound? That's the auto industry letting out a collective sigh as last year turned out half-decent. Absent the natural disasters that bedraggled 2011, 2012 picked up steam. Shoppers bought 14.5 million new cars, up 13.4% from an inventory-strapped 2011. Experts predict 2013 sales to increase anywhere from 3.5% to around 10%, which would land them in the 15 to 16 million range by the time Santa fills the stockings again.
"We don't see a return to the financial doldrums" of years past, GM treasurer James Davlin told reporters at last week's Society of Automotive Analysts conference. Rather, most economic indicators give a "positive bias" toward new-car sales. Bob Schulz, managing director at Standard and Poor's, echoed Davlin: "The U.S. has been a huge bright spot" in an uncertain global economy.
Still, 2013 won't chart a return to the heyday of 1999 to 2007, when dealers routinely sold 16 to 17 million cars a year.
"Consumer confidence remains fragile and volatile, and unemployment remains high," Schulz said. There's also a pesky storm cloud that won't go away: fewer cars per household.
The U.S. has 975 cars per 1,000 licensed drivers, Ford chief economist Ellen Hughes-Cromwick said. That figure had fallen throughout the recession as scrappage rates — the number of cars sent to junkyards — matched or exceeded new-car sales in 2010 and 2011.
There are 7 million fewer passenger cars on the road now versus 2007, said Itay Michaeli, vice president at Citi Investment Research and Analysis. The silver lining: Most vehicles hitting the junkyard are 11 to 23 years old, and the average car on the road is around 11 years old. That increases the prospect that most of those cars will head to clunker heaven soon — and drivers will buy new, or newer, replacements. It may not occur in huge numbers this year, but at least the decline in so-called car density has at least slowed since early 2010.
So much of this cycle of returning to 16 or 17 million new-car sales is getting shoppers to shift back to two cars per household, Michaeli said. But going from "one [car] to two is a very discretionary purchase. It requires a lot of consumer confidence."
Those older than 45 may not help matters. They expect to have fewer vehicles in the future, Michaeli said. That means younger shoppers are "left to pick up the slack," he said.
Studies have suggested they aren't doing that, but a recent one raised some hope.
What will those young shoppers buy? It's a tough question.
"You're looking across a very different age group," said Jeff Schuster, senior vice president of LMC Automotive. "It comes down to the lifestyles. It comes down to the stages. I don't think you can necessarily group them. ... It's really going to be choice. You give that audience choice."
They should have plenty. Schuster said he counts 61 new or redesigned vehicles showing up this year, up 50% from 2012. That should help drive sales this year, which are on their way toward the 16-to-17 million sweet spot by late this decade.
There's reason to believe him. Earlier last year, the Center for Automotive Research tallied 2012 sales forecasts from a slew of analysts. LMC Automotive had the most accurate.

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