U.S. auto sales seen as best since 2007 on low financing

New car buyers, shunned by lenders just four years ago, now are benefiting from historically low interest rates and more-available credit, pacing a U.S. auto market that is hovering near pre-recession levels.

General Motors Co. and AutoNation Inc., respectively the top-selling automaker and dealership group in the U.S., are among companies pointing to ample financing for new car and truck purchases pushing sales comfortably past 15 million this year, the highest since 2007.

“We have the best financing available for our customers ever,” Mike Jackson, the chief executive officer of Fort Lauderdale, Florida-based AutoNation, told a J.D. Power & Associates conference this month in Orlando, Florida. “I go back to ’08 and ’09, and I couldn’t get the Lord Above financed.”

U.S. light-vehicle sales probably climbed 3.7% in February to 1.19 million, the average estimate of 10 analysts in a Bloomberg survey. The annualized industry sales rate, which is adjusted for seasonal trends, may have matched January’s pace of 15.3 million, the average of 15 analysts’ estimates.

“No industry has benefited more from the unfreezing of the credit markets than new and used vehicles,” Tom Webb, chief economist of Manheim Consulting, said this month in a report. “Although the immediate goal of Federal Reserve actions was to lower long-term rates and support the mortgage market, it was auto-financing markets that enjoyed the first boosts.”

Leasing Returns

GM, whose former finance unit needed a bailout because of losses on subprime home mortgages, saw “a number of lenders” completely exit auto leasing during the recession, said Kurt McNeil, vice president of U.S. sales operations. The Detroit- based automaker is now building General Motors Financial Co. and has seen lenders including Ally Financial Inc., the former GM unit, and Wells Fargo & Co., expand their offerings to its dealers and customers.

“The availability of consumer credit is plentiful,” McNeil said this month in an interview at a National Automobile Dealers Association convention in Orlando. “More lenders are interested in getting back into various elements of our business. That just fuels opportunity.”

The percentage of new-vehicle sales that were leases has exceeded 20 percent since the beginning of 2010 and has reached about 25% the past three months, Kevin Tynan, a senior analyst at Bloomberg Industries, said in a Feb. 25 report.

Banks reported the most common rate for a 48-month new-car loan was 4.82% in November, the most-recent reporting period. The rates have dropped from more than 7% before the Fed lowered its target interest rate to zero in December 2008 and began large-scale asset purchases to boost growth.

Ford Gaining

Ford Motor Co. probably boosted sales of its cars and light trucks more than any major automaker in February, with an increase of 9.8%, the average of 11 estimates. GM probably sold 4.9% more vehicles than a year earlier, the average of 11 estimates.

Deliveries of Ford’s Explorer sport-utility vehicle will increase more than 50 percent from a year earlier, Angie Kozleski, a spokeswoman for the Dearborn, Michigan-based company, said in an e-mail.

Rising demand is leading automakers to invest and add workers at U.S. plants. Ford said this month it will spend $200 million to boost production at an Ohio plant of a four-cylinder engine that goes into vehicles including the Explorer. The factory will start production of the engine in late 2014 and add 450 jobs.

Employment Rises

The number of people employed in motor-vehicle and parts manufacturing climbed to 786,500 at the end of 2012, from 653,400 three years earlier, according to the Labor Department.

“Credit availability is a big part of supporting the growth of the auto industry,” Joe Hinrichs, Ford’s president of the Americas, told reporters on Feb. 21 at the company’s engine plant near Cleveland. “Dealers are feeling more optimistic about leasing and credit availability for consumers.”

Volkswagen AG may post the second-biggest increase among the largest automakers, with a 9.2% gain in combined sales for its Volkswagen and Audi brands, the average of four estimates. Toyota Motor Corp. deliveries probably rose 8.5%, the average of eight estimates.

Ally Financial, formerly known as GMAC Inc. and wholly owned by GM until 2006, probably will lose its lead this year for financing the most new- and used-vehicle sales in the U.S., Bill Muir, the company’s president and head of auto operations, said in an interview. Wells Fargo topped Ally in last year’s third quarter.

‘No Question’

Banks are “awash in deposits” and putting them to use in lending to auto buyers with the best credit, said Michael Carpenter, Ally’s CEO.

“There’s no question, for I think understandable reasons, that the automotive market bounced back first,” Carpenter said in an interview at the NADA convention. “You’re not making a bet on a housing recovery and what’s happening to house prices. You’re making a bet on a loan over four years on a vehicle” that is “indispensable” to millions of Americans.

GM and Chrysler Group LLC are letting deals with Detroit-based Ally expire this year that have guaranteed a minimum percentage of their vehicles sold with so-called subvented loans, those made to consumers at below-market rates. Chrysler this month agreed to form a financing venture with Banco Santander SA.

Before settling on Santander, Chrysler received a “number of proposals” from financial companies that weren’t interested in the automaker three or four years ago, Reid Bigland, Chrysler’s U.S. sales chief, said in an interview.

‘Very Attractive’

Credit availability and low interest rates were “tops on the list” of reasons why U.S. auto sales rose 13% last year, the biggest annual increase since 1984, Bigland said at the NADA convention. The Auburn Hills, Michigan-based company probably boosted sales by 4.4% in February, the average of 11 estimates.

“The returns in the auto business over the last few years have been very attractive,” Trip Hall, president of Capital One Auto Finance, said in an interview. “That’s caused increasing competitive activity in the market, new entrants and players expanding from where they have been in the past.”

Honda Motor Co. may have increased sales in February by 0.7 percent and Nissan Motor Co. deliveries probably slipped 3.3%, both the average of eight analysts’ estimates.

Analysts estimate that Seoul-based Hyundai Motor Co. and Kia Motors Corp. may have combined to sell 5.1% fewer vehicles in February compared with a year earlier, the average of six estimates.

February had 24 selling days, one fewer than in 2012.

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