Strong Auto Sales Rebound

The auto industry suffered a steep decline at the onset of the recession in 2008. The graph below shows vehicle sales with the blue bar chart showing home sales. Autos and light truck sales fell from 17 million to 10 million.  U.S.-produced vehicles experienced a proportionally bigger collapse, with sales falling off by nearly 50 percent. But the auto industry is making a reasonably good comeback. Recent months’ data suggest total vehicle sales will likely be between 14 to 15 million this year. Naturally, the return of vehicle demand has forced up the price of new cars.

Given that autos are typically the second most expensive purchase item after a home purchase for most consumers, it is worth tracking whether consumers are becoming confident enough to buy a high-priced product that often requires financing. A fairly robust recovery in auto sales may therefore portend a solid home sales recovery. My counterpart chief economist at Ford Motors, Ellen Hughes-Cromwick, however, believes the causation to run in the other direction as recently covered in the Wall Street Journal (July 3):

Ms. Hughes-Cromwick also said there are "early signs that housing is starting to begin a revival over the next 12 to 18 months." A rebound in housing helps car makers in two ways. Rising home prices make consumers feel better about spending, and increased construction activity generally bolsters purchases of pickups and commercial vehicles by businesses.

Irrespective of whether it is housing recovery that is helping auto sales or if auto sales portend better home sales ahead, one thing is clear: both are rising and that’s good news for people in the two respective industries and for the broader economy.

One further point to note related to auto sales is jobs. There are increasing numbers of made-in-America cars that are of foreign brands, such as Toyotas produced in Kentucky and Texas, Nissans in Tennessee, Mercedes in Alabama, and BMWs in South Carolina. But it is still Michigan that is the dominant center of auto production in the United States. As such, employment in Michigan has been turning positive for two straight years after the devastating 10-year job bleeding conditions in the state. There is likely to be a solid pent-up housing demand being released into the Wolverine State.