Why Auto Sales Are Picking Up

It looks like U.S. auto sales are continuing to rebound: TrueCar analyst Jesse Toprak said on Tuesday that he expects November to be the best month for auto sales since February of 2008 – before the financial crisis.

TrueCar is predicting a 12.7% year-over-year increase in auto sales for the month, a number that echoes the optimism expressed by other industry watchers – and industry leaders – in recent days.

Here's why more people are buying new cars
Count Ford's (NYSE: F  ) global sales and marketing chief Jim Farley among the optimists. Speaking to reporters on Monday, Farley said that Ford executives have been watching carefully for signs that economic anxieties would make consumers more reluctant to buy new cars – and they haven't seen many.

Instead, consumer interest in new car shopping seems to be picking up, thanks to a few different factors. First, as Farley pointed out, the average car in the U.S. is 11 years old – a record high. Put another way, more Americans are driving tired old cars longer.

This is what auto industry executives – including Farley's boss, Ford CEO Alan Mulally – mean when they talk about "pent-up demand" for new cars in the U.S. Strapped consumers started putting off new car purchases when the economy began to head south in 2008, making do in many cases with vehicles they'd bought several years before. Those cars are now getting quite old, and as the economy has continued to recover, more folks are heading to their local new car dealers.

And those Americans that are visiting dealers are finding that new cars are more fuel-efficient – often much more fuel-efficient – than their old rides. That alone can be a compelling sales factor at a time when gas prices have settled near $4 a gallon in many parts of the country. As Farley said on Monday, customers are doing the math.

Many new cars really are brand-new
A lot of those new cars are also new – as in brand-new models introduced just recently. Ford moved aggressively to overhaul its entire product line in recent years, and rivals from Chrysler to Toyota (NYSE: TM  ) have been following suit. What's more, almost every leading model in one of the industry's most important segments – midsized sedans – is new, or nearly new.

Ford's hot new Fusion sedan, Honda's (NYSE: HMC  ) brand-new mainstay Accord, and General Motors' (NYSE: GM  ) Chevy Malibu are all brand-new for 2013 – and the segment leader, Toyota's Camry, was just launched late last year. These are the bread-and-butter cars that are attracting many buyers who've been driving SUVs for years – and who are attracted by the leading-edge technology and big gas mileage numbers these brand-new models offer.

Some are gaining more than others
That's working out better for some automakers than for others, though. While Ford's sales gains in 2012 have been modest – though its profits have remained strong – some rivals have posted big year-over-year increases. Some, like Chrysler and Hyundai have made big market share gains, while Toyota and Honda have largely regained the ground they lost last year in the wake of the Japanese tsunami.

Given the Japanese giant's big gains, it's no surprise that Toyota's U.S. chief Jim Lentz is another one of the auto sales optimists. Speaking at the Los Angeles Auto Show, Lentz pointed to an improving economy, falling unemployment, and – importantly – exceptionally low interest rates as signs that new car sales are "gaining momentum."

As 2012 draws to a close, that's a good sign for all of the automakers.

What does the turn of the new year hold for Ford? Ford has been performing incredibly well as a company over the past few years – it's making good vehicles, is consistently profitable, recently reinstated its dividend, and has done a remarkable job paying down its debt. But Ford's stock seems stuck in neutral. Does this create an incredible buying opportunity, or are there hidden risks with the stock that investors need to know about? To answer that, one of our top equity analysts has compiled a premium research report with in-depth analysis on whether Ford is a buy right now, and why. Simply click here to get instant access to this premium report.


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