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Motor vehicles, model year 1993.

Motor vehicle output, sales, and employment increased in model year 1993, and inventories remained lean.(1) Model year 1993 was the second consecutive year of improvement in the industry after several years of decline. In 1993, the improvement was largely accounted for by trucks; in 1992, it had been more evenly split between cars and trucks.

Motor vehicle output in constant (1987) dollars increased 10.2 percent in model year 1993 to $200.6 billion after increasing 7.2 percent in model year 1992 (table 1). Output had declined 12.9 percent in 1991 and 5.1 percent in 1990. In 1993, the level of output was still below the 1989 peak of $205.2 billion. Three-fourths of the increase in motor vehicle output in 1993 was accounted for by truck output, which increased 20.5 percent to $81.0 billion after increasing 12.0 percent in 1992. Car output increased 4.2 percent to $119.6 billion after increasing 4.6 percent.


Motor vehicle sales in constant dollars increased 9.0 percent in model year 1993 to $198.3 billion after increasing 4.5 percent in model year 1992; Sales had declined 11.1 percent in 1991 and 2.5 percent in 1990. The 1993 level of sales, like that of output, was still below the 1989 peak of $200.7 billion. More than five-sixths of the 1993 increase in sales was accounted for by truck sales, which jumped 21.4 percent to s8o.4 billion after increasing 6.0 percent in 1992. Car sales increased 2.0 percent to $117.9 billion after increasing 3.6 percent.

In units, sales of new motor vehicles in the United States jumped 8.1 percent in model year 1993 to 13.9 million units after edging up 0.9 percent in 1992; in 1991, sales had been 12.8 million, the lowest level since 1983 (table 2).(2) Sales of trucks jumped in 1993, as sales of domestic-nameplate trucks and of transplant trucks increased sharply, while sales of imported trucks declined.(3) Sales of cars increased modestly in 1993, as a sharp increase in sales of domestic-nameplate cars more than offset decreases in sales of transplant cars and imported cars. During the model year, motor vehicle sales increased in the first three quarters and declined in the final quarter (chart 1).


Motor vehicle inventories increased $2.3 billion in model year 1993 after edging up so.1 billion in 1992. Three-fourths of the 1993 increase was accounted for by car inventories, which increased $1.7 billion after decreasing $0.9 billion. Truck inventories increased so.6 billion after increasing $1.0 billion.

The increase in vehicle sales in 1993 led to a modest increase in employment and sizable increases in average weekly hours and in capacity utilization. Employment in the motor vehicle industry increased 1.0 percent to 817,120 in model year 1993 after increasing 3.3 percent in 1992. The average weekly hours of production workers increased 1.2 hours to 43.6 hours in 1993, and the capacity utilization rate increased 5.8 percentage points to 73.8 percent.

Factors affecting 1993 sales. - In model year 1993, sales were boosted by three interrelated general factors that are usually associated with expenditures for durable goods: Constant-dollar disposable personal income increased 2.8 percent - the largest increase in 5 years - after increasing 1.9 percent in 1992; the unemployment rate decreased for the first time in 4 years; and the Index of Consumer Sentiment - prepared by the University of Michigan's Survey Research Center - jumped 11 percent after falling in 1991 and 1992.

In addition, motor vehicle sales in 1993 may have been bolstered by several factors that are specific to the motor vehicle market: Pent-up demand, finance terms on new-car loans, sales-incentive programs for consumers, new-car prices, and the cost of car ownership. Sales in 1993, as in 1992, may have been boosted by the release of some pent-up demand. One way to estimate pent-up demand is to compare actual sales with the long-term trend in sales. Sales in 1990-91 were below the trend line and were falling farther below the line, indicating a probable buildup in pent-up demand (chart 2). In 1992 and 1993, sales moved up toward the trend line, which suggests that some pent-up demand may have been released.

Finance terms on new-car loans were more favorable in 1993 than in 1992 (chart 3). First, interest rates were lower; for loans made by auto finance companies, rates averaged 9 1/2 percent in 1993 after averaging 10 1/2 percent in 1992. 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 go percent in 1993 from 89 percent in 1992.

Manufacturers offered attractive sales-incentive programs to consumers throughout model year 1993; these programs helped to boost sales even though they were slightly less attractive than those offered in 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 1993 than in 1992. The consumer price index (CPI) for new cars increased 2.4 percent after increasing 2.7 percent. The average expenditure per new car also increased less in 1993 than in 1992: It was up 2.6 percent to $18,293 after increasing 7.1 percent.(4) The smaller increase in 1993 mainly reflected a large increase in the share of total sales that was accounted for by domestic cars, which have a smaller average expenditure than imported cars. A factor that pushed up the average expenditure in 1993, as it has in each year since 1989, was a sizable increase in purchases of options (such as driver-side airbags, antilock brakes, automatic transmissions, and power windows). Shares of sales by size class changed modestly and probably had little effect on the change in average expenditures. (See the discussion on purchases by size class later in this article.)

Still another factor that may have contributed to higher vehicle sales was a decline in the cost of car ownership. The cost of car ownership decreased 1.5 percent in 1993 after increasing 8.3 percent in 1992 and 10.9 percent in 1991.(5) The 1993 decline in ownership cost was accounted for by reductions in the cost of car insurance (primarily because owners opted for higher deductibles), in finance costs (primarily reflecting lower interest rates), and in gasoline prices.

Sales in 1993, as in 1992, may have been dampened by changes in the marketing programs offered by manufacturers to businesses for fleet sales.(6) Under these programs, manufacturers agree to repurchase fleet cars after they reach certain minimum age and mileage requirements. The programs offered in 1993 and 1992 had slightly higher age and mileage requirements than those offered in 1991 and 1990; as a result, companies probably decided to wait longer to replace their fleet cars.

In addition, two long-term trends that have dampened motor vehicle sales in recent years probably continued in 1993. First, since the early 1980's, the growth rates of the driving-age population and of household formation have slowed. Second, owners are keeping their vehicles longer; according to the American Automobile Manufacturers Association, the average age of cars on the road, which has been climbing since the early 1980)s, reached 8.1 years in 1992 (the most recent year for which data are available), the highest level since 1948.

Business cycle developments. - Motor vehicle sales have behaved atypically throughout the current business cycle.(7) Usually, motor vehicle sales turn up before a recovery begins (chart 1). However, in the most recent recession, sales reached their low point of 12.4 million units (seasonally adjusted annual rate) in the first quarter of 1991, the same quarter that the economy reached its low point. In addition, motor vehicle sales typically jump sharply in the first 2 years after a cyclical trough, reflecting both an 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. However, the 0.9-percent increase in unit sales in model year 1992 and the 8.1-percent increase in 1993 were well below the increases in other recent recoveries; for example, sales increased 15.7 percent in 1983 and 21.4 percent in 1984 after a 4-year decline, and they increased 26.1 percent in 1976 and 11.9 percent in 1977 after a 2-year decline.(8)

Like the increases for motor vehicle output and sales, increases in gross domestic product (GDP) in model years 1992 and 1993 were modest when compared with past recoveries. However, the relative weakness in motor vehicle output and sales during this recovery has been more pronounced than the relative weakness in GDP.

New Cars

Sales of new cars in constant dollars increased 2.0 percent to $117.9 billion in model year 1993 after increasing 3.6 percent in 1992. Sales had declined 11.1 percent in 1991 and 1.8 percent in 1990.

Unit sales provide a slightly different picture. In units, sales of new cars increased 3.3 Percent to 8.6 million units in 1993 from 8.3 million in 1992; the 1993 increase followed 6 years of decline. Car sales had declined 3.0 percent in 1992, 9.0 percent in 1991, and 8.6 percent in 1990.

Most of the increase in new-car sales was in sales to business, primarily to finance companies, which in turn leased the cars to consumers. About 25 percent of new cars operated by consumers were leased in 1993, compared with 12 percent in 1986, the year before leasing began to increase sharply.(9) In recent years, manufacturers have shifted marketing strategies toward favorable leasing terms and away from sales-incentive programs. Leasing has gained popularity because consumers do not have to negotiate the price of the car and because they have fewer worries about maintenance and resale.

Sales of domestic cars, which consist of both domestic-nameplate cars and transplant cars, increased 6.5 percent to 6.6 million units in 1993 from 6.2 million in 1992. The increase was accounted or by sales of domestic-nameplate cars, which increased 9.6 percent to 5.5 million after decreasing 1.7 percent. The increase at least partly reflected continued improvements in quality and generally lower prices. Sales of transplant cars fell 7.3 percent to 1.1 million after increasing 0.6 percent. The decline partly reflected weak economic activity in California, where transplant cars have a larger share of the market than in other States.

The market share (the percent of total new-car sales) of domestic cars increased to 76.6 percent in 1993 from 74.3 percent in 1992. The market share of domestic-nameplate cars jumped to 64.3 percent from 60.6 percent (chart 4); their share had peaked at 73.2 percent in 1985. The market share of transplant cars declined to 12.3 percent from 13.8 percent in 1992.

By size class, the 1993 increase in domestic-car sales was accounted for by sales of middle-sized and large cars; sales of small and luxury cars changed little. Sales of middle-sized cars increased to 3.3 million, and their market share increased to 37.9 percent from 36.2 percent (chart 5). Sales of large cars increased to 0.9 million, and their market share increased to 10.5 percent from 8.9 percent. Sales of small cars edged up to 1.9 million, and their market share edged down to 21.5 percent from 21.9 percent. Sales of luxury cars were unchanged at 0.6 million, and their market share edged down to 6.7 percent from 7.3 percent.

Sales of imported cars fell 6.0 percent to 2.0 million in 1993 - the lowest level since 1978 - from 2.1 million in 1992. Sales had declined 7.5 percent in 1992, 12.6 percent in 1991, and 10.1 percent in 1990. The market share of imported cars declined to 23.4 percent in 1993 from 25.7 percent in 1992; their share had peaked at 30.5 percent in 1987. The recent declines in import sales largely reflect shifts in production by foreign manufacturers from overseas plants to U.S. transplants; most of the models manufactured at transplants were previously manufactured overseas and then imported. In addition, the 1993 decline 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 increased 3.3 percent to 5.8 million units in 1993 from 5.6 million in 1992; in 1991, production had been 5.4 million, the lowest level in 9 years. Domestic-car inventories edged up to 1.4 million at the end of 1993 from 1.3 million at the end of 1992, and the inventory-sales ratio edged up to 2.6 from 2.5; traditionally, the industry targets an inventory-sales ratio of about 2.4. Even with increased sales in 1992 and 1993, manufacturers limited the increases in production because the increases in sales were modest and because they wanted to maintain lean inventories. After struggling with ballooning inventories in the late 1980's, manufacturers and retailers have kept inventories low in the 1990's for two reasons: First, the cost of holding large inventories either cuts into profits or forces higher prices, which may result in lower sales; second, cars held in inventory for long periods may lose value through deterioration or through the introduction of new models.

New Trucks

Sales of new trucks in constant dollars jumped 21.4 percent - the largest increase since 1984 - to $80.4 billion in model year 1993 after increasing 6.0 percent in 1992. Sales had decreased 11.1 percent in 1991 and 3.6 percent in 1990.

In units, sales of new trucks jumped 17.1 percent to 5.3 million units in 1993 after increasing 8.8 percent in 1992; sales had decreased 11.9 percent in 1991 and 6.6 percent in 1990. The 1993 jump was more than accounted for by a jump in the sales of light domestic trucks; sales of "other" trucks also increased, and sales of imported trucks fell sharply. The share of total motor vehicle sales accounted for by trucks jumped to a record 38 percent in 1993 from 35 percent in 1992.

Sales of light trucks (domestic and imported) jumped 16.7 percent to 5.0 million in 1993 after increasing 9.2 percent in 1992 and declining in each of the preceding 3 years.(10) Light-truck sales in 1993 were affected by the same general factors (stronger growth in disposable personal income, declining unemployment, and a jump in consumer confidence) and some of the factors specific to the motor vehicle industry (modest price increases and favorable finance terms and sales-incentive programs) that strengthened car sales.

In addition, the jump in light-truck sales, which now account for about 37 percent of total sales of light vehicles (cars and light trucks), continues a 12-year trend in which truck purchases have been substituting for car purchases. The trend is strongest for families purchasing second and third vehicles; these families often prefer the recreational and utility features, such as increased passenger and load-carrying capacity, that light trucks offer. Moreover, trucks are increasingly purchased as primary family vehicles. Newly designed, multipurpose truck models have blurred the distinction between trucks and cars. Even conventional trucks have become more popular with consumers; by 1993, consumers accounted for more than 50 percent of pickup-truck sales. In addition, prices of many light-truck models have been lower than those of most car models.

Sales of domestic light trucks jumped 18.9 percent to 4.8 million in 1993 after jumping 12.2 percent in 1992. Sales of domestic-nameplate light trucks increased 14.5 percent to 4.5 million, but their share of light-truck sales slipped to 89.2 percent from 91.0 percent. 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 larger price increases for imported Japanese trucks. Sales of transplant trucks jumped 146.9 percent to 0.3 million; their share of light-truck sales increased to 6.7 percent from 3.2 percent.

Sales of imported light trucks fell 18.7 percent to 0.2 million in 1993 after plummeting 25.3 percent in 1992; these drops continued a series of sharp declines that began in 1988. These drops, like those in imported-car sales, partly reflected a shift in production from overseas plants to transplants. The imported-truck share of light-truck sales fell to 4.1 percent in 1993 from 5.8 percent in 1992.

Sales of "other" trucks increased 22.6 percent to 0.3 million." Nearly all of these trucks are purchased by businesses. The domestic models' share of total sales of "other" trucks has been roughly go percent in recent years.

Quarterly Patterns in Model Year 1993

Motor vehicle output in constant dollars jumped in the fourth quarter of 1992 and in the first quarter of 1993; it then decreased in the second quarter and fell sharply in the third. Motor vehicle sales in constant dollars alternated between sharp increases and smaller, but sizable, decreases throughout the model year.

In units, motor vehicle sales increased in the fourth quarter of 1992 and in the first and second quarters of 1993; sales decreased in the third quarter. Car sales increased in the fourth and second quarters and decreased in the first and third quarters (chart 6). Truck sales increased in the fourth, first, and second quarters and decreased in the third quarter (chart 7).

(1.) For this article, the model year is defined as beginning on October 1 and ending on the following September 30. Thus, model year 1993 covers the fourth calendar quarter of and the first, second, and third calendar quarters of 1993. (2.) This article uses data on unit sales, inventories, and production mainly from Ward's Automotive Reports and the American Automobile Manufacturers Association and data on prices mainly from the Automobile Invoice Service and the Bureau of Labor Statistics, US. Department of Labor. These data underlie the estimates of auto and truck output in the national income and product accounts. (3.) 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. Imported cars and trucks are those manufactured outside North America and sold in the United States. (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 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 (which is a fixed-weighted price index), reflects changes in the mix of models and options sold and includes cars sold to businesses and governments. (5.) Data on cost of car ownership comes from an American Automobile Association study that is based on detailed information provided by Runzheimer International. The study covers car owners who were not involved in any accidents. (6.) Fleet sales are sales to businesses that purchase 10 or more vehicles for rental, leasing, or commercial use. (7.) After slowing in the first half of 1990, the U.S. economy entered a recession in the third quarter of 1990. The recession trough was reached in the first quarter of 1991, and 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, has increased modestly, and in the first quarter 0f 1992, it surpassed its second-quarter 1990 peak. (8.) Data for model years must be used with caution when comparing development in business cycles, because peaks and troughs of different cycles fall at different points in the model year. However, the relative weakness of the current recovery is also evident in the comparison of quarterly data, which are not affected by the timing of peaks and troughs. (9.) Data on leasing were provided by CNW Marketing Research. (10.) Light trucks are those with a gross vehicle weight of up to 10,000 pounds. These trucks include light conventional pickups, compact pickups, sport-utility vehicles, and passenger vans. (11.) "Other" trucks are those with a gross vehicle weight of over 10,000 pounds. These trucks range from medium-duty general delivery trucks to heavy-duty diesel tractor-trailers.
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Author:Moran, Larry R.
Publication:Survey of Current Business
Date:Nov 1, 1993
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