The US Auto Industry has Solid Momentum: General Motors Company (GM), Ford Motor Company (F)

Foreign carmaker Volkswagen’s sales were up 2.9% to 31,456 units compared to the same period last year. Though VW recorded its best February since 1973, the rate of growth declined sharply given that it posted a 31% increase last year in February. On the other hand the world’s top automaker, Toyota, saw sales gains of 4.3% and managed to sell 166,377 units. The auto giant’s growth was helped by sales jump of the crossover RAV4, which rose 5%, and the Avalon sedan, which reported a massive sales hike of 63%. The company looks pretty confident with its fresh line of fuel efficient vehicles, and is particularly overwhelmed with consumer response for the new Avalon and RAV4.

Despite a stagnated economy, what is it that is driving the overall automotive sales?

The key drivers

Though the economy is slow, the US auto sector has consistently given positive results in the past few years after it got hit in 2009. Consumer confidence seems to be strengthening with time, as carmakers are replacing their aging models with new versions. Newer models with fantastic features offered by automaker have made it very difficult for buyers to resist replacing their old version with the latest one. In fact the pent-up demand is so strong that the increased gas price and tax are unable to suppress it. Huge demand that had been held back during the bad years is now driving the auto sales, as both households and businesses are buying new vehicles.

Moreover, easy credit at lower interest rates is another factor that is encouraging customers to buy new vehicles with impressive specifications. Though automakers have reduced discounts and other similar offers that eat away margins, lower finance rates and reasonable lease installments have made sure to attract buyers to the showrooms.

Final thoughts

Massive demand for new models backed by easy credit and a declining unemployment rate is driving US auto sales. The growth pace is expected to stabilize and become moderate for the rest of the year. It is essential for automakers to offer vehicles with great features and attractive specifications to remain competitive and take advantage of the improving demand, particularly as the European outlook remains dull.

The article The US Auto Industry has Solid Momentum originally appeared on Fool.com and is written by Rajesh Marwah.

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