RAMSEY, N.J., April 30, 2018 (Newswire.com) - Americans’ demand for new vehicles accelerated in April, largely driven by a strengthening labor market, a growing preference for SUVs and higher incomes from tax cuts. TechnoMetrica’s Auto Demand Index climbed seven points, or 7.5 percent, this month to a score of 100, yielding the second straight monthly gain in the reading. April marks the second month this year in which the Index has hit 100, an indicator of strong vehicle purchase intent among consumers. Thus, we anticipate that auto sales, after springing to life in March, will continue to blossom as the new season gets underway.
TechnoMetrica Market Intelligence developed the Auto Demand Index, or ADI, as a way to measure the intent of consumers to buy or lease a new vehicle within the next six months. Raghavan Mayur, president of TechnoMetrica, explained that the ADI, which is conducted monthly, is based on the response to a key question posed to more than 900 adult Americans: How likely is it that you will buy or lease a new vehicle within the next six months?
New vehicle sales performed impressively during the first quarter of 2018, despite a rough winter in much of the U.S. Auto sales hit the gas pedal in the beginning of the year, rising 1.2 percent year-over-year in January. While sales slowed a month later, they soon roared back with a 6.3 percent gain in March, the largest annual increase since February 2016. Overall, new vehicle sales rose two percent in the first three months of the year, beating the first quarters of both 2017 and 2016.
Recent trends in auto demand indicate that auto sales will remain strong in the near future. For instance, the Index’s 12-month average improved for the first time since October 2017, while the three-month average remained unchanged. In addition, our indicator for momentum, the MACD, registered its first gain of the year in April, though the reading still lingers in negative territory at -1.3.
“Increased take-home pay as a result of the new tax cuts, coupled with a healthy job market, has encouraged consumers to allocate more of their income to big-budget items, such as automobiles,” said Raghavan Mayur, president of TechnoMetrica. “Therefore, we at TechnoMetrica expect that new vehicle sales will remain strong in the months ahead, especially as automakers and dealerships continue to offer deep discounts.”
This month’s rise in vehicle purchase intent extends across most demographic groups. In April, demand for new vehicles grew among 12 of the 19 segments that TechnoMetrica monitors on a monthly basis, compared with just two in March. Consumers across a variety of demographics feel more comfortable pursuing their purchasing plans at this time, largely due to improved weather conditions and greater awareness of a tax-cut-induced boost to incomes. The Black and Hispanic segment (plus 20) showed the greatest improvement in purchase intent levels this month, as the unemployment rates of both groups near their lowest levels in recorded history.
Rural Americans (plus 10) also showed significantly greater intent to purchase new vehicles, reflecting the group’s surging optimism regarding the overall economy. Consumer confidence among those living in rural areas has reached its highest levels in more than a decade, according to recent readings of the IBD/TIPP Economic Optimism Index. Demand also rose among consumers aged 45 to 64 and those earning less than $30K a year, with both segments posting nine-point gains in the ADI this month.
Young adults aged 18 to 24 continue to report the highest levels of purchase intent, as a brighter employment situation and higher incomes boost spending power among the demographic. The age cohort registered a four-point gain in the Index this month, posting a robust score of 175.
Meanwhile, vehicle demand eased among six groups in April, with consumers residing in the western U.S. (minus 17) showing the most significant weakening in the Index. Purchase intent also decelerated among Americans earning an income of $100K or more (minus 15), likely due to concerns over the ongoing volatility in the stock market. The 25 to 44 age cohort reported its lowest levels of intent to purchase new vehicles in more than three years, as the Index dropped 10 points this month to a reading of 84.
Increased optimism about an improving labor market has likely fueled the overall rise in vehicle demand. The U.S. economy added an average 202,000 jobs per month during the first quarter of 2018, indicating fundamental strength in the job market. Since President Trump has taken office, employers have added over 2.5 million new payrolls, while the unemployment rate has hit a 17-year low. Job growth has been particularly robust within the manufacturing industry. The Trump economy has yielded around 263,000 manufacturing jobs so far, compared to a net loss of over 300,000 payrolls during the entire Obama presidency. In addition, jobless claims recently reached their lowest levels in more than 48 years.
Prospective vehicle buyers have also been encouraged by larger incomes due to the tax cuts that were signed into law last December. According to estimates from the U.S. Treasury, around 90 percent of Americans workers are seeing larger paychecks as a result of the new tax law, which reduced the corporate rate from 35 percent to 21 percent and cut individual taxes nearly across the board. Further, more than 500 companies have responded to the tax cuts by granting their workers bonuses, raises and other employee benefits.
Persistently high incentives are also driving consumers’ robust levels of purchase intent. The average discount on a new vehicle hit $3,698 in April, an increase of $187 from a year earlier, according to data from J.D. Power and LMC Automotive.
Along with monitoring Americans’ intent to purchase new vehicles, the monthly Auto Demand Index measures other key areas of consumer preferences, including the most desired vehicle types. Utility vehicles remain in high demand, as prospective buyers become increasingly more willing to dish out money for larger vehicles due to an improving economy and low gas prices. Nearly one in five consumers (17 percent) reported that they were likely to acquire a small SUV for their next vehicle purchase. In addition, preference for large SUVs (plus 5) recorded the most significant positive change this month, with 16 percent of likely buyers selecting this type of vehicle. Mid-size cars also remain popular among consumers, as preference for this category rose for the second straight month in April, to a share of 18 percent. Meanwhile, demand for pickup trucks remained unchanged from the previous month, at a 13 percent share of prospective vehicle buyers.
The study also seeks to uncover Americans’ favorite automotive brands. Chevrolet and Ford represented the most preferred brands this month, with each vehicle make garnering a 13 percent share of likely buyers. While preference for Chevrolet dropped three points from March, the share of consumers favoring a Ford grew by three points. Meanwhile, after recording a five-point gain last month, Honda saw its popularity decline slightly in April, to 11 percent of prospective buyers. The share of consumers preferring a Toyota for their next new vehicle purchase dropped one point to 10 percent, the second straight monthly decline for the American brand.
Each month, TechnoMetrica uses Random Digit Dial telephone methodology to conduct live interviews with more than 900 respondents, using both landlines and cell phones. The margin of error for the survey is +/- 3.2 percentage points. In addition, recent statistical analysis has shown a strong correlation between the Auto Demand Index and actual U.S. vehicle sales.
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