Household automobile finance

Byline: Steve Finlay

SAN FRANCISCO - New vehicle sales will dip this year but remain strong by historical standards, says Paul Taylor, chief economist for the National Automobile Dealers Association.

He projects unit sales of 16.5 million this year, down from '02's pace of 16.8 million. He says sales may dip to 16.3 million if the U.S. goes to war with Iraq.

"Given that the preceding four years were the best in the history of automotive retailing, there is momentum for the long run," says Taylor, speaking at NADA's 86th annual convention here. "Positive underlying economic fundamentals are working in the industry's favor."

In the face of the predicted softening of new-car sales, Taylor predicts dealers will step up efforts at selling used vehicles, particularly certified cars that are one-three years old and carry extended warranties.

Certified sales have exploded, increasing to 1.2 million units in 2002, a 90% jump from 2001.

But franchised new-car dealers are fetching less money for used cars as many traditional used-car buyers become new-car owners, largely because of auto makers' generous incentives, especially 0% financing.

The average price of used cars sold by franchised dealers dropped from $14,500 to about $13,000.

Taylor expects dealers will step up their parts and service operations to counteract the expected drop in vehicle sales this year.

Citing Ward's data, he notes that crossover utility vehicles (CUVs) are the source of continued growth, up 23% last year, 87% in 2001 and 78% in 2000.

Demographically, the vehicles-per-household trend has increased to 1.60.

That's part of a dramatic increase seen in the last 20 years.