On the closing day of the Conference of Automotive Remarketing last week, optimism among the auction community was palatable as the outlook for car sales remains strong. But all the Nevada sunshine didn’t hide the fact that the broader national economic recovery is still weak, and future auto sales could be impacted by government policy moves.
In his closing keynote presentation, National Auto Auction Association Chief Economist Ira Silver told auction execs and consignors that car sales will likely increase this year. There’s a lot of pent-up demand and a growing driving-age population ― a forecast that bodes well for 2014 and 2015, he said.
Growth in the auto sector should happen despite an economy that’s been experiencing a weak recovery ― with real GDP still below 3% ― coupled with a true unemployment rate that’s likely higher than the official numbers touted by policymakers. Silver lambasted the divisiveness in Washington, charging that the government standoff during the debt-ceiling debate contributed to a climate of uncertainty.
But the slow growth and dogged unemployment rate are two of the main reasons why Silver expects the Fed to keep interest rates steady ― in the near term, at least. And those low interest rates have been one of the drivers of a solid auto recovery in recent years.
“I think rates will stay very low,” Silver said. “A lot depends on the bigger economy. If the economy gets stronger, it might be earlier, but in 2014 they’ll stay where they are for the short side of the loans.”
Consumers in a challenged economy can afford cars, even though those cars haven’t really gone down in price because they can get credit that’s cheap and easy. As cars last longer, they have more economic value, Silver told Auto Finance News after his presentation.
Although interest rates have made credit more affordable, some consumers on tight budgets still seek out the lowest possible monthly payment. Auto finance execs say 72 months is quickly becoming the new normal on loan terms. Silver’s prediction: The average loan term will likely climb even higher.
