The economy may still be sluggish, but at least one indicator is looking relatively bright: U.S. consumers are buying new cars and trucks at the strongest pace in more than four years.
U.S. sales of "light vehicles" -- cars, pickups, and SUVs -- were up 20% in August over year-ago totals, good enough for a seasonally adjusted annualized sales rate of more than 14.5 million, the highest rate seen since the beginning of the economic crisis.
What's driving it? A few factors, starting with every auto executive's favorite phrase: "Pent-up demand."
"Pent-up demand" driving gains across the board
In the years before the economic crisis, U.S. auto sales clipped along at a rate of over 16 million a year. But the sales rate fell sharply in 2008, and it has yet to recover to anything like last decade's levels.
That has led to the theory of "pent-up demand." Put simply, the idea is that all of those cars and trucks bought by Americans over the last decade are wearing out. Eventually, they'll need replacement, and that will drive a sharp increase in new vehicle sales.
While there are good reasons to be skeptical of the idea that auto sales will recover to pre-recession levels any time soon, we may be seeing some evidence of that "pent-up demand" emerging now. For instance, despite high gas prices and a still-sluggish economy, pickup sales are on the rise. Ford (NYSE: F ) reported a 19% increase in sales of its F-series pickup line in August, suggesting that small businesses and homebuilders may be beginning to replace aging truck fleets. And nearly all automakers saw a boom in sales of their most fuel-efficient models, suggesting that consumers may be trading in old gas-guzzlers on cars that are cheaper to run.
Not everyone is benefiting equally from the boom, however. General Motors (NYSE: GM ) saw only modest increases in sales of its full-size pickups in August, though competitive pressures may be to blame -- GM's pickups are aging models, set for replacement next year, while Ford's are the current class leaders. Overall, GM's U.S. sales were up 10% on the month -- not bad, but not in the same league as most of its biggest rivals.
Key overseas rivals gained significant ground
GM's primary U.S. rival may be Ford, but on a worldwide basis, its biggest and most worrisome rivals are Toyota (NYSE: TM ) and Volkswagen (OTC: VLKAY) -- both of which posted impressive U.S. sales results in August.
Toyota's sales were up 45.6% over last year's tsunami-hammered results, as the Japanese giant rode strong sales of its new RAV4 SUV and expanded Prius family to triple-digit year-over-year gains. Toyota also had a seat at the truck banquet, with solid gains for both its midsized Tacoma and full-size Tundra pickups -- though sales of the Tundra remain well behind those of market leaders Ford and GM.
Toyota's recovery from several years of difficulties here continues to impress, as the company has relied on strong products and marketing without resorting to big spending on incentives. Toyota's spending on "cash back" and cheap financing offers was up a bit from July, as its year-end clearance efforts gather steam, its per-vehicle spending remained lower than nearly all key competitors, according to TrueCar.com estimates.
Meanwhile, Volkswagen posted its best August results since the Beetle-crazed heights of 1973, as VW's U.S. sales climbed a whopping 62.5%. Strong sales of the Passat and Jetta sedans led the way. VW is in the midst of a massive global push to gain market share -- Chairman Ferdinand Piëch has said that he wants VW to be the world's biggest-selling carmaker by 2018 -- and gains in the U.S. market are a key part of that plan.
The upshot: Autos are still strong
Despite some systemic headwinds, auto sales continue to be a bright spot in the overall economic picture. More consumers and small businesses are choosing to upgrade aging vehicles, suggesting that -- at least on some level -- economic confidence may be rising.
As always, the winners and losers among the automakers at any given moment will depend largely on the relative strength of their current products. While GM is mounting an aggressive effort to overhaul its product line over the next few years, many of its current models aren't competitive with the world's best, and that shows in its so-so-sales results. And while discounts and marketing can sometimes drive big short-term gains, most of the time the automakers with the best new vehicles will continue to post the most impressive gains over the long haul.
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