Car buyers are changing—and it’s helping sales
Car buyers are making this a glorious spring for auto dealers around the country.
With the exception of a few brands, the industry’s sales were much stronger than expected last month, as a combination of good weather, an improving economy and pent-up demand made it the strongest May since 2007.
Increasingly, buyers are coming into showrooms because they want to—not just because they need to replace their current model—signaling a shift in consumer behavior.
“We’re getting into a more discretionary market,” said Emily Kolinski Morris, senior economist for Ford.
In addition to the reasons behind their shopping changing, consumers are also willing to pay more for their vehicles. Although the average transaction price paid for a new vehicle ticked slightly lower in May, after rising at a steady clip for more than a year, customers are still, on average, paying at least $30,000 on a new vehicle, according to TrueCar.com.
What’s more, a study released by Experian Automotive earlier this week found that buyers are becoming more comfortable with taking on debt, and are capitalizing on historically low interest rates and longer payment terms to keep their monthly payment as low as possible.
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In the first quarter, one out of every four auto loans was written with repayment terms of six or seven years. That’s the highest percentage of these loans the firm has ever recorded in a quarter.
General Motors, which has recalled more than 13 million vehicles this year, easily beat analyst estimates, with sales rising 12.6 percent in May.
“We would point out that the trend in GM’s total and retail sales has onlyimproved since news of its ignition switch recall affecting older model cars became widely reported upon in the media, ” J.P. Morgan analyst Ryan Brinkman wrote in a note to investors.
Across the industry, a strong Memorial Day weekend, as well as May’s extra weekend compared with the previous year, also contributed to automakers’ strong performance.
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“A lot of factors came together in May to make the sales numbers exceptionally strong,” said AutoTrader.com analyst Michelle Krebs.
Shares of Ford, General Motors, Toyota and Nissan all moved higher in midday trading.
—By CNBC’s Phil LeBeau
Questions? Comments? BehindTheWheel@cnbc.com.