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Motor vehicles, model year 1992.

Model year 1992 marked the first improvement in the motor vehicle industry in 5 years; however, the improvement was slight. Sales, employment, and production each increased modestly in 1992, and inventories remained lean.

Sales of new motor vehicles in the United States edged up 1 percent in model year 1992 to 12.9 million units after decreasing 10 percent in 1991 to 12.8 million, the lowest level since 1983 (table 1).(1) Sales have declined in 4 of the last 6 years after reaching a peak of 16.1 million in 1986. The 1992 increase in motor vehicle sales was more than accounted for by sales of trucks. Sales of domestic-nameplate trucks and of transplant trucks increased, and sales of imported trucks declined.(2) Sales of cars declined; sales of both domestic-nameplate and imported cars declined, but sales of transplant cars edged up.

Employment in the motor vehicle industry increased 3 1/2 percent to 811,492 in model year 1992 after falling 5 percent in both 1991 and 1990, and the average weekly hours of production workers increased to 42.5 in 1992 from 42.0 in 1991. Capacity utilization for the motor vehicle industry increased 4 1/2 percentage points to 70 1/2 percent.

Motor vehicle sales have behaved atypically during the current business cycle.(3) Usually, motor vehicle sales lead the recovery and are strong in the first year of the recovery (chart 1). However, in this business cycle, motor vehicle sales reached their low point of 12.3 million units (seasonally adjusted annual rate) in the same quarter that the economy reached its low point - the first quarter of 1991. In addition, the 1-percent increase in sales in model year 1992 was well below first-year increases in other recent recoveries; for example, sales increased 15 1/2 percent in model year 1983 after 4 years of decline, and they increased 26 percent in model year 1976 after 2 years of decline.

Factors affecting 1992 sales. - Typically, motor vehicle sales jump sharply in the first year after a recession, reflecting both improvement in the general factors associated with consumer expenditures for durable goods and the release of demand that built up during the recession because consumers postponed purchases. In model year 1992, sales were held down by three inter-related general factors that are usually associated with expenditures for durable goods: Real disposable personal income (DPI) increased only 1 1/2 percent, well below the normal increase in the first year of a recovery; the unemployment rate increased for the third consecutive year, to its highest level since 1984; and the Index of Consumer Sentiment - prepared by the University of Michigan's Survey Research Center - declined for the third consecutive year, to its lowest level since 1982. There was evidence that some pent-up demand may have been released in model year 1992: Real personal consumption expenditures for motor vehicles increased 3 1/2 percent, considerably more than the increase in real DPI.

Motor vehicle sales in 1992 may have been bolstered by several factors that are specific to the motor vehicle market: Finance terms on new-car loans, sales-incentive programs for consumers, and new-car prices. Finance terms on new-car loans were more favorable in 1992 than in 1991 (chart 2). First, interest rates were lower; for loans made by auto finance companies, rates averaged 10 1/2 percent in 1992 after averaging 13 percent in 1991. Second, downpayments were smaller; for loans made by auto finance companies, the ratio of the average value of loans to the value of cars purchased rose to 89 percent in 1992 from 87 percent in 1991.

Manufacturers offered attractive sales-incentive programs to consumers throughout model year 1992. These programs consisted of discount packages on options, rebates, and below-market financing; rebates remained the most frequently selected of the incentive-program choices.

New-car prices increased slightly less in 1992 than in 1991. The consumer price index (cpi) for new cars increased 2 1/2 percent after increasing 3 percent in 1991. In contrast, the average expenditure per new car increased more in 1992 than in 1991: It was up 6 percent to $17,563 after increasing 4 percent in 1991.(4) The 1992 increase in the average expenditure reflected increased purchases of options (such as driver-side airbags, antilock brakes, automatic transmissions, and power windows) rather than an upscaling in the size class of cars purchased.

Two market-specific factors may have dampened sales in 1992. First, manufacturers' marketing programs for fleet sales to businesses were less attractive in 1992 than in 1991.(5) Under these programs, manufacturers agree to repurchase fleet cars after they reach certain minimum age and mileage requirements. The fleet marketing programs offered in model year 1992 had slightly higher age and mileage requirements than those offered in 1991; these higher requirements probably encouraged companies with fleets to wait longer to purchase new cars. Second, 1992 sales may have been affected by another substantial increase in the cost of car ownership. The cost of car ownership increased 8 1/2 percent in 1992 after an 11-percent increase in 1991, according to a study by the American Automobile Association.

In addition, two long-term trends have dampened motor vehicle sales in recent years. First, since the early 1980's, the growth rates in the driving-age population and in household formation have slowed. Second, owners are keeping their vehicles longer; according to the Motor Vehicle Manufacturers Association, the average age of cars on the road climbed to 7.9 years in 1991 (the most recent year for which data are available), the highest level since 1950.

Another long-term trend that is related to the motor vehicle industry should also be noted. The ratio of consumer auto installment credit to DPI has fallen to 6.0 in 1992 from 8.8 in 1988. The decline may reflect increases in personal-use leasing and in auto purchases financed by home equity loans. By 1992, personal-use leasing accounted for 11 1/2 percent of new-car registrations and for 8 percent of new-truck registrations, according to R.L. Polk and Company. Since 1986, when changes in the tax law phased out interest paid on auto loans as a deduction from taxable income in calculating tax liability, an increasing number of consumers may have used home equity loans to finance car purchases, because they could stir deduct the interest on these loans.

New Cars

Sales of new cars declined 3 percent - the sixth consecutive decline - to 8.3 million units in model year 1992 from 8.6 million in 1991. Car sales had declined 9 percent in 1991, 8 1/2 percent in 1990, and 1 1/2 percent in 1989. Sales of both domestic and imported cars decreased in 1992.

Sales of domestic cars, which consist of both domestic-nameplate cars and transplant cars, declined 1 1/2 percent to 6.2 million units in 1992 from 6.3 million in 1991. Sales of domestic-nameplate cars declined 1 1/2 percent to 5.0 million after falling 11 percent in 1991. Sales of transplant cars increased 1/2 percent to 1.1 million after increasing 10 1/2 percent.

The market share (percent of total new-car sales) of domestic cars increased to 74 1/2 percent in 1992 from 73 percent in 1991: The market share of domestic-nameplate cars edged up to 60 1/2 percent from 60 percent (chart 3); their share had peaked at 69 1/2 percent in 1986. The slight 1992 gain may have partly reflected new-product introductions and quality improvements. The market share of transplant cars remained at 13 1/2 percent in 1992.

By size dass, the 1992 decline in domestic-car sales was more than accounted for by sales of middle-sized and luxury cars; sales of small and large cars increased. Sales of middle-sized cars declined to 3.0 million, but their market share was unchanged at 36 percent (chart 4). Sales of luxury cars declined to 0.6 million, and their market share declined to 7 percent from 8 percent. Sales of small cars increased to 1.8 million, and their market share increased to 22 percent from 21 percent. Sales of large cars increased to 0.7 million, and their market share increased to 9 percent from 8 percent.

Sales of imported cars fell 7 1/2 percent to 2.1 million in 1992 - the lowest level since 1978 - from 2.3 million in 1991. Sales of these cars had declined 12 1/2 percent in 1991, 10 percent in 1990, and 7 percent in 1989. The market share of imported cars declined to 25 1/2 percent in 1992 from 27 percent in 1991; their share had peaked at 30 1/2 percent in 1987. The recent declines in sales largely reflected shifts in production by foreign manufacturers from overseas plants to U.S. transplants; most of the models manufactured at transplants are the same as those previously manufactured overseas and then imported. The 1992 decline in sales may also have reflected the weakening of the U.S. dollar against the Japanese yen, which led to larger price increases for Japanese cars than for domestic cars.

Domestic-car production edged up to 5.6 million units in 1992 from 5.4 million in 1991, the lowest level in 9 years. Manufacturers limited the increase in production because sales were weak throughout the year and because they wanted to maintain lean inventories. After struggling with ballooning inventories in the late 1980's, car manufacturers and retailers have kept inventories low in the 1990's for two reasons: First, the cost of holding large inventories either cut into profits or forced higher prices, which may have resulted in lower sales; second, cars held in inventory for long periods may lose value by deteriorating or by going out of style.

Quarterly patterns in model year 1992

Sales of new cars fell in the fourth quarter of 1991, increased modestly in the first and second quarters of 1992, and then fell again in the third quarter (chart 5).

Domestic cars. - In the fourth quarter of 1991, domestic-car sales dropped to 6.1 million (seasonally adjusted annual rate) from 6.3 million in the third quarter. The drop was more than accounted for by sales to businesses; sales to consumers increased. The decline in sales to businesses reflected a cutback in manufacturers' fleet marketing programs. The step - up in sales to consumers may have been bolstered by a 2-percent increase in real DPI, the largest in seven quarters. Domestic-car production was unchanged in the fourth quarter at 5.5 million (seasonally adjusted annual rate). Inventories were unchanged at 1.3 million at the end of the fourth quarter. The inventory-sales ratio edged up to 2.6 from 2.5; traditionally, the industry targets an inventory-sales ratio of about 2.4.

In the first quarter of 1992, sales remained at 6.1 million. Sales to consumers increased, but sales to businesses dropped. The continued growth in sales to consumers reflected a step-up - to a 4-percent increase - in real DPI and a decline in interest rates on new-car loans. The drop in sales to businesses again reflected a cutback in manufacturers' fleet marketing programs. Production remained at 5-5 million. Inventories remained at 1.3 million, and the inventory-sales ratio edged back down to 2.5.

In the second quarter, sales increased to 6.3 million. The increase was more than accounted for by sales to businesses; sales to consumers fell. The decline in sales to consumers reflected an anemic increase in consumer income, a jump in unemployment, and weakness in consumer confidence. Production increased to 5.9 million, the highest level in nearly 2 years. Inventories again were unchanged at 1.3 million, and the inventory-sales ratio remained at 2.5.

In the third quarter, sales edged down to 6.2 million. Sales to both consumers and businesses decreased slightly. The decline in sales to consumers reflected virtually no change in consumer income, an increase in unemployment, and a decline in consumer confidence. Production fell to 5.6 million. Inventories edged up to 1.4 million, and the inventory-sales ratio increased to 2.7, the highest level since the fourth quarter of 1989.

Imported cars. - sales of imported cars decreased to 2.1 million in the fourth quarter of 1991 and edged up to 2.2 million in the first quarter of 1992; they were unchanged in the second quarter and decreased to 2.0 million, the lowest level in more than 10 years, in the third quarter. Inventories of imported cars changed little in the fourth quarter of 1991 and decreased in the first quarter of 1992; they decreased more sharply in the second quarter and increased slightly in the third.

New Trucks

Sales of new trucks jumped 9 percent - the largest increase since 1985 - to 4.5 million units in model year 1992 after declining 12 1/2 percent in 1991, 6 percent in 1990, and 1/2 percent in 1989. The 1992 jump was accounted for by increases in the sales of domestic fight trucks and of "other" trucks; sales of imported light trucks declined. The share of total motor vehicle sales accounted for by trucks jumped to a record 35 percent in 1992 after declining to 3 2/2 percent in 1991, the first decline since 1982.

Sales of light trucks increased 9 percent to 4.3 million in 1992 after declining in each of the preceding 3 years.6 The increase was mainly accounted for by sales of sport-utility vehicles, vans, and small pickups. Light trucks, many of which are purchased for personal use, accounted for 94 1/2 percent of total truck sales in 1992, up slightly from 1991.

The strength in 1992 light-truck sales is somewhat surprising because many of the same factors - such as weak growth in DPI, rising unemployment, and falling consumer confidence - that may have weakened car sales also affected light-truck sales.

Sales of domestic light trucks jumped 12 1/2 percent to 4.0 million in 1992 after falling 10 1/2 percent in 1991 and 5 percent in 1990. Sales of domestic-nameplate light trucks increased 11 percent to 3.9 million, and their share of light-truck sales increased to 91 percent from 89 1/2 percent in 1991. The strength in sales of these trucks reflected new-product introductions, quality improvements, and efforts by manufacturers to hold down price increases; in addition, a weak dollar against the yen led to large price increases in imported Japanese trucks. Sales of transplant trucks jumped 76 percent to 0.1 million; their share of light-truck sales increased to 3 percent from 2 percent. In model year 1993 and beyond, Japanese manufacturers plan to introduce more truck models, including larger pickup trucks, into the U.S. market. Initially, these models will be built in Japan, but eventually they will be built in U.S. transplants.

Sales of imported light trucks plummeted 25 1/2 percent to 0.2 million in 1992, continuing a series of sharp declines; these drops, like those of imported-car sales, partly reflected a shift in production from overseas plants to transplants. The imported truck share of light-truck sales fell to 6 percent from 8 1/2 percent.

Sales of "other" trucks increased 3 percent to 0.3 million.(7) Nearly all of these trucks are purchased by businesses. The domestic models' share of total sales of "other" trucks has declined in recent years, to roughly go percent in 1992.

Quarterly patterns in model year 1992. - Most of the strength in truck sales was in the second quarter of 1992. Truck sales were unchanged in the fourth quarter of 1991 and in the first quarter of 1992; they jumped sharply in the second quarter and decreased slightly in the third (chart 6).

In the fourth quarter of 1991, truck sales were unchanged at 4.3 million. An increase in sales of domestic light trucks offset small decreases in sales of imported light trucks and of "other" trucks.

(1.) This article uses data on unit sales, inventories, and production mainly from Ward's Automotive Reports and the Motor Vehicle Manufacturers Association and data on prices mainly from the Automobile Invoice Service and the Bureau of Labor Statistics, U.S. Department of Labor. These data underlie the estimates of auto and truck output in the national income and product accounts.

For this article, the model year is defined as beginning on October 1 and ending on the following September 30. Thus, model year 1992 covers the fourth calendar quarter of 1991 and the first, second, and third calendar quarters of 1992. (2) Sales of domestic cars and trucks consist of sales of vehicles manufactured in North America and sold in the United States. Domestic-nameplate vehicles are those manufactured in North America at factories owned by U.S. companies. Transplant vehicles are those manufactured in North America at foreign-owned factories, which are known as transplants. Sales of imported cars and trucks consist of sales of vehicles manufactured outside North America and sold in the United States. (3.) After slowing in 1989 and the first half of 1990, the U.S. economy entered a recession in the third quarter of 1990. In the second quarter of 1991, many of the major measures of economic activity, such as real gross domestic product (GDP), turned up; since then, GDP has increased modestly, and in the third quarter of 1992, it surpassed its second-quarter 1990 peak. (4) BEA derives the average expenditure per new car by weighting each model's suggested retail price (adjusted for options, discounts or premiums, and sales taxes) by its share of sales. Movements in the average expenditure differ from movements in the new-car component of the CPI, which is a fixed-weighted price index, primarily because the CPI, unlike the average expenditure, is adjusted to remove the influence of quality change on prices and because the average expenditure, unlike the CPI, reflects changes in the mix of models and options sold and includes cars sold to businesses and government. (5.) Fleet sales are sales to businesses that purchase 10 or more vehicles for rental, leasing, or commercial use. (6.) Light trucks are those with up to 10,000 pounds gross vehicle weight. These trucks include light conventional pickups, compact pickups, sportutility vehicles, and passenger vans. (7.) "Other" trucks are those with over 10,000 pounds gross vehicle weight. These trucks range from medium-duty general delivery trucks to heavy-duty diesel tractor-trailers.
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Title Annotation:sales of new cars and trucks
Author:Moran, Larry R.
Publication:Survey of Current Business
Date:Oct 1, 1992
Words:3071
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