Business, Economics and Jobs

Car sales are up, possibly sign of improving economy

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Potential buyers look at new cars at an auto showcase event. (Photo from Flickr user Lee Sam.)

Car sales are up in the United States, according to statistics from March.

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According to The New York Times March sales are the best they have been "since before the recession." 

Americans bought 1.4 million cars in March. If sales remained steady at that rate, they would end the year at over 14 million cars sold. Chrysler sales alone rose 34 percent for the month.

Paul Eisenstein, publisher of TheDetroitBureau.com, noted the success of Chrysler's recent Halftime in America Super Bowl ad and its follow-up series of ads.

"And one of the ads, the theme, a guy working his tail off all hours of the day and night, whatever he can get, and it's basically if you've got a truck, you've got a job," Eisenstein said. "And that is an important thing right now."

Part of the cause of the sales increase has been the aggressive lending by banks. The number of loans issued to subprime buyers is steadily growing, allowing more subprime and nonprime buyers to purchase new cars.

"Some places that simply could not loan money for all sorts of their own financial reasons now have access," Eisenstein said. "I mean, it's just one of those things where credit is beginning to loosen up, and the automakers are working at it."

Leasing is also back on the rise, according to Eisenstein, but leasing is not at rates seen in the period he refers to as "the crazy days."

"At one point you had two-thirds of the luxury cars being sold in this country were leased at ridiculous rates, but leasing is back, and incentives are back," Eisenstein said. "All the right things are happening right now."

Car companies are turning a profit too. General Motors is selling cars at a rate that, Eisenstein said, would have put it into bankruptcy in the period before the company's Chapter 11 sale. However, under new management, the company is making money from this volume of car sales.

"They are making billions and billions and billions of dollars. They would have impressed Carl Sagan with these numbers," Eisenstein said. "It's a lot of money they're making because they have transformed the companies. They have cut out so much fat, they've cut into the bone. One of the big issues right now is they've cut so much, they're now hiring — can't even find enough people to man their product development labs or factories."

Eisenstein wrote in an article on his website that the problem is engineers who were forced into retirement when the economy was worse, mostly aren't coming back, and engineering schools are "struggling to fill slots and turn out fresh talent." Car companies also need to hire assembly line workers, which may be harder to do with lower wages and less generous benefits.

"A lot of the workers getting jobs in the auto assembly line right now are on the second tier level where they are now working for roughly half what they used to get, which is still not a bad wage. Certainly better than most Americans are making in desperation jobs, but it's still less," Eisenstein said.

Assembly line workers also have to be more knowledgeable than in the past. It may be necessary for workers to understand business management strategy now, even if they're working manual labor jobs.

"You're working on the assembly line in the past, all you need was a strong back. These days, they've improved the ergonomics, so it's an easier job physically, though not easy. And you may have to know things about Six Sigma, like all of these little things about quality control," Eisenstein said.

The question remains if the increase in car sales is sustainable. Eisenstein said part of the boom might be due to "pent up demand," a result of people who previously couldn't afford cars now being issued loans. However, he also said consumers are purchasing new cars to upgrade their fuel efficiency, which may be more conducive to long-term growth. While car sales are up, the estimates remain below the all-time high of 17 million cars sold per year in the mid-2000s.