Has the Auto Recovery Only Just Begun?

Consumers in the United States purchased more than one million vehicles in January, pushing auto sales up 14 percent and keeping the seasonally-adjusted annual rate above the 15 million mark, according to industry research firm Autodata. Although the current pace is still below pre-recession sales volumes, the results indicate that the automobile industry will continue to outpace the broader economic recovery in 2013, and analysts at Bank of America’s Merrill Lynch believe that this trend could continue for years.

Last year marked the real beginning of the auto-industry rebound. Sales jumped 13.4 percent year over year, and the car market became one of the most vigorous contributors to the U.S. economic recovery. President Barack Obama even cited the recovery of the sector in Tuesday’s State of the Union address as an economic driving force, and analysts John Murphy and Elizabeth Lane, who circulated a bullish report on the state of the automobile industry on Wednesday morning, think there’s even more room to grow.

They predicted that the industry’s gains will continue through 2018, when the next sales peak is expected. By that time, sales are estimated to reach 17 to 18 million units, an increase of 72 percent from the 10.4 million vehicles sold 2009, which was the lowest sales level since the early 1980s…
The research note predicted that the primary driver for this growth will be the need for vehicle replacement. “We believe that the ultimate underlying driver of vehicle replacement is miles driven, which is what we use to measure fundamental demand for travel utility,” wrote Murphy and Lane. “We estimate that drivers in the US are essentially ‘using up’ 15 million units-worth of travel utility on an annual basis,” they added.

As the figures released by Autodata earlier this month indicated, manufacturers like General Motors (NYSE:GM), Ford (NYSE:F), and Toyota (NYSE:TM) will be the primary beneficiaries of this increased demand if current trends continue. These automakers drastically beat Wall Street’s expectations in January and predicted high single-digit growth rates for this year

Easier access to credit, low interest rates, a lower unemployment rate, and higher home prices were cited as reasons for the positive momentum in January sales by the National Automobile Dealers Association, and barring any unexpected apocalypse, these factors could help the prediction made by Merrill Lynch’s analysts come true.

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