Light vehicle sales have also been strong in the current year, which is primarily boosted by easy credit availability at low interest rates. A 48-month loan costs as reasonable as 2.92%, as per Bankrate.com. Buyers are rushing into showrooms to replace their old cars with an average age of over 11 years. The Memorial Day sales were also crucial to May’s fantastic sales numbers.
Anticipating better demand in the second half of the year, domestic automakers have either shortened or skipped their traditional summer shutdown to boost production levels. In fact, Ford Motor Company (NYSE:F) is preparing to augment its production by 10% to 740,000 vehicles in the third quarter. Automakers are adopting several discount offers and other incentives as tactics to sustain the present level of growth. Nissan Motor Co., Ltd. (ADR) (OTCMKTS:NSANY) gave a discount of $580 in the list price of seven models. Moreover, automakers including Chrysler, Honda Motor Co Ltd (NYSE:HMC), and Nissan are giving incentives of extra rebates to dealers who meet sales targets.
My takeaway – a word of caution
Auto giants are working very hard to keep up the current momentum. But the question is, how long will the current growth rate of the auto sector continue? Several analysts are skeptical that if the Federal Reserve stiffens its economic stimulus, the auto industry would be hit very hard.
Incentives such as easy credit, lengthier repayment period, and low finance cost cannot be long-term solutions for the industry to lure buyers. The solution is in creating jobs which shall lead to income growth of the buyers. Lacey Plache, the chief economist of Edmunds.com, rightly points out that the recovery of the labor market shall help buyers purchase vehicles and make car loan repayments more than anything else.
Rajesh Marwah has no position in any stocks mentioned. The Motley Fool recommends Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM). The Motley Fool owns shares of Ford Motor Company (NYSE:F).
The article U.S. Automakers Delighted by May Sales originally appeared on Fool.com.
Rajesh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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