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Road to Recovery Began in 2010, But Concerns Remain

January 04, 2011

Despite three automakers reporting sales gains and the world’s largest retail association predicting that December will see the biggest increase in spending since 2006, the Conference Board reported that consumer confidence dipped in the year-end month for the first time in two months. The reason: jobs. One industry watcher, however, maintains that the industry’s road to recovery started in 2010.

The private research firm’s Consumer Confidence Index, which is based on a sampling of 5,000 U.S. households, dipped from 54.3 in November to 52.5 in December, reversing two consecutive months of increases. A reading of 90 indicates a healthy economy, a level that hasn’t been realized since 2007. The Conference Board’s director of consumer research, however, offered a more positive perspective on the index’s latest reading.

“Despite this month’s modest decline, consumer confidence is no worse off today than it was a year ago,” said Lynn Franco. “Consumers’ assessment of the current state of the economy and labor market remains tepid, and their outlook remains cautious.”

What’s weighing on consumers’ minds is the increase in the unemployment rate, which ticked up to 9.8 percent in November from 9.6 percent in October. Falling home prices also are impacting consumer confidence.

Still, layoffs are slowing, businesses are buying more goods and consumers are spending more money. In December, the National Retail Federation predicted that spending from November through December would reach $41.5 billion, up 3.3 percent from the year-ago period. If realized, the increase would mark the largest uptick in spending in four years.

The sales surge wasn’t lost on the auto industry either, with Chrysler, Ford and General Motors all reporting sales increases in December. Other automakers were expected to release their sale figures later today.

December marked the ninth consecutive month of year-over-year sales increases for the Chrysler Group, which saw sales jump 16 percent from December 2009. For the year, sales increased by 17 percent to 1.1 million units sold in the United States.

Ford’s December sales were up 17 percent from December 2009. Including fleet deliveries, sales were up 7 percent. For the year, U.S. sales jumped 15 percent, with the automaker picking up market share from its rivals for the second consecutive year. Ford officials said it was the first back-to-back increase in market share since 1993.

General Motors posted a 7.5 percent increase in December U.S. sales and said it expects the industry to report sales at a 13 million-unit annualized rate for the month. Compared to the same period last year, sales rose 16 percent, led by percentage gains in Buick and GMC. For all of 2010, sales rose 6.3 percent to 2.2 million from the prior year.

Economists surveyed by Reuters expected auto sales to reach a 12.3 million unit annualized sales rate in December, which would mark the third consecutive month the annualized sales rate sat above 12 million units.

Truecar.com predicts the number of cars, SUVs and pickups sold in the United States to reach 11.5 million, an 11 percent increase from 2009 — the worst year for auto sales since 1982. However, the sales pace is still far from the 16.1 million units sold in 2007 — the final year before the recession took hold.

AutoPacific, an automotive research firm, believes the recovery started in 2010, and expects sales to close out at 11.4 million for the year. The Tustin, Calif.-based organization said it expects a healthy recovery over the next five years, with sales increasing 6 percent every year until 2016. However, it does not believe the industry will return to a 17 million-unit year anytime soon. In the short term, AutoPacific believes sales will reach 12.4 million units in 2011, as it expects credit to become increasingly available and automakers to release new vehicles and technologies that will compel sales.

“Even with economic recovery, various economic indicators such as consumer confidence, home values, and perhaps most tellingly, unemployment, remain at worrying levels,” said Ed Kim, director of industry analysis at AutoPacific. “These are longer term problems that will take time to fix, so economic recovery – and hence auto sales recovery – will occur over several years.”

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