Gas Prices, Easing Credit Drive Up Small Vehicle Sales
While sales of new light vehicles in the United States continued at a brisk pace in March, the types of vehicles being purchased, as well as the types of buyers and the average transaction price are rapidly changing, according J.D. Power and Associates reported this week.
WESTLAKE VILLAGE, Calif. — While sales of new light vehicles in the United States continued at a brisk pace in March, the types of vehicles being purchased, as well as the types of buyers and the average transaction price are rapidly changing, according J.D. Power and Associates' Power Information Network(R) (PIN).
While light-vehicle sales have been strong in the first quarter of 2012, rising gasoline prices — which averaged $3.92 nationwide at the end of March (according to AAA's Daily Fuel Gauge Report) — have convinced many consumers to purchase smaller, more fuel-efficient vehicles, the research firm said.
Through the first two months of the year, sales of sub-compact and compact passenger cars have accounted for approximately 25 percent of all retail sales. Sales of sub-compact vehicles have increased the most, up more than 35 percent in the first two months of 2012 compared to a year ago.
"Higher vehicle sales are obviously welcome news for the U.S. automotive industry and general economy," said John Humphrey, senior vice president of global automotive operations at J.D. Power and Associates. "However, automakers are going to have to closely monitor shifts in segment demand and build accordingly."
While higher fuel prices have helped steer consumers into smaller vehicles, easing restrictions on financial credit — including an increase in 72-month loans — has resulted in a new segment of buyers in the new-vehicle market. According to PIN data for the first two months of 2012, new-vehicle buyers with FICO scores in the "C" tier (scores ranging from 625-649) grew by 19 percent vs. a year ago, while buyers with FICO scores in the D tier (ranging from 0-624) grew by 23 percent during the same period. Due to this increase in C/D-tier buyers, the two segments combined accounted for 15 percent of all retail sales in the first two months of 2012.
By comparison, the proportions of consumers with credit ratings in the A+-tier (720-999), A-tier (680-719) and B-tier (650-679) grew by rates of 7 percent, 11 percent, and 15 percent, respectively. As a result, the average national FICO score of new-vehicle buyers has declined from a peak of 737 at the end of 2009 to 725 in the first two months of 2012.
Additionally, the average transaction price for new vehicles dropped substantially in the recent quarter. According to PIN data, the average retail transaction price of a new vehicle in the fourth quarter of 2011 was $29,223, an all-time high. However, through the first two months of 2012, the average transaction price fell to $27,953, which was still well above historical levels but lower than the peak at the end of 2009.
"Lower average transaction prices can clearly cut into vehicle profit margins," said Humphrey. "But given the production rationalization the industry underwent during the recent financial crisis, most automakers and dealers are much more flexible and better prepared to adapt to quick changes in market demand."
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