Auto Industry Trends 2014

Good things come to those who wait, and everyone waiting for new car sales to once again pass the pre-recession threshold of 16 million will finally be rewarded in 2014. Edmunds.com's forecastof 16.4 million light vehicles expects car buyers to continue to flock to market, taking further advantage of more freely flowing credit to refresh the oldest vehicle fleet in history. Sales also will receive a boost in 2014 from an expected 300,000 additional lease returners, compared to 2013, who will lease or buy a new vehicle when their current leases end. At the same time, the downside risk to sales growth will be lower as the economy and consumer confidence continue to improve. While economic growth will remain modest overall, enough progress has been made that car buyers will be largely undeterred by the next rounds of U.S. fiscal crises.

Segment trends will reflect industry strength. The last top-selling segment to lag behind the overall industry recovery — large trucks — finally gained some momentum in 2013, bringing sales to 87 percent of 2007 levels (compared to 74 percent in 2012). This progress will continue in 2014 since the key factors driving truck sales — a recovering housing market, stable gas prices, and refreshed product offerings (notably the Ford F150) — will remain in play. Plus, numerous other segments will get new product infusions as automakers expand their product lines to meet untapped consumer demand. Luxury automakers in particular will branch out with new compact cars from Audi and BMW following the recently introduced Mercedes CLA-class; a Porsche compact crossover SUV; and a Maserati midsize sedan. Meanwhile, traditional value brands like Hyundaiand Kia will continue to push the upper price envelope with high-end sedans. On the green front, the first mainstream fuel-cell vehicles are within sight. And, the rapidly dwindling midsize truck segment will get a boost in 2014 with the reintroduction of the Chevrolet Colorado, adding another dimension to the truck party in progress.

In addition to offering a wider variety of vehicles, automakers will continue to increase new car production to grow sales and share, while the used car market will see a surge in off-lease vehicles and older trade-ins. Growing inventories could mean more deals to attract car buyers, which will appeal to the deal-seeking mentality prevalent since the recession. The quest for more-bang-for-the-buck also will mean that buyers will be increasingly drawn to leasing. In general, more car buyers will arrange funding through dealers, with leases and dealer-financing supporting over three-quarters of transactions as the share of sales from other funding sources, such as cash and loans from third party lenders, declines further. Regardless of how they pay, buyers will be less tolerant of the traditionally long-winded negotiations in the dealership, preferring instead to lock in the price and as many other terms of the deal as possible before arriving.

All in all, the trends emerging for 2014 point to another strong year for the auto industry, with benefits for car buyers (competitive pricing and greater choice) as well as automakers and dealers (more sales).