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Good News and Bad News

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On: Tue, Dec 9, 2014 at 1:20PM | By: Karen Cook


Good News and Bad News

The news is telling us that the economy is deep into recovery. The unemployment rate is consistently falling and most people who lost a job during the recession have managed to find one again. Sales in the auto industry, however, are not reflecting the upswing.

Even though new vehicle sales are up 6% or last year, the growth has been very slow. As a whole, the industry is set to come in at $16.4 million in sales for 2014 which is the highest since 2006. That’s good news, but not as good as the $17 million pre-recession sales.

The problem is that even though people are employed, they have had to make do with lower paying jobs, meaning that the new job is not equal to the one they lost. Add to this the fact that paychecks have remained on pretty level ground with no raises forthcoming and you have a large portion of the population who are not making major purchases like cars. If a replacement car becomes a necessity many shoppers are trolling the used lot to find something suitable.

Those that do opt for a new vehicle have a budget that will not accommodate a higher monthly payment than the one they are already making. Paychecks may not be getting any bigger but new car prices are, which has led to lower interest rates and longer loans in order to help keep payments low. A six- or seven-year loan on $25,000 can turn a $420 monthly payment into a more manageable on of $298.

While this helps the consumer afford a new car, the auto industry gets only a short term benefit. It boosts the numbers today but down the road it can cost sales. This is due to the fact that buyers need to have more of the loan paid down before trade-in, which causes them to put off another purchase.

While shoppers may buy lower priced new products such as televisions, gaming systems, and smart phones, a new car purchase is just too much commitment until wages rise, which means the auto industry is going have to be patient for a while longer before it sees sales figures to match pre-recession days. According to Steven Szakaly, chief economist for the National Automobile Dealers Association, “If wages were growing, we’d be in a market of over $17 million already.”

12-9 arm




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