Earthquake, Gas Prices Could Set Back New Car Sales

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New car buyers may go on strike -- again. Faced with the rising cost of fuel and parts shortages that could drive up new car prices and make some popular models scarce, consumers in the market for a new car may decide to delay purchases or turn to used cars. That would push auto manufacturers back into a difficult position.

Car trend research firm Polk noted last fall that the average new car owner kept a new model for 63.9 months -- up 4.5 months from the same time a year earlier. Several factors played into this trend, including consumer austerity driven by the recession, the prevalence of longer-term car loans, and better-made cars.

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Many of Japan's auto parts plants are still shuttered after the March 11 earthquake. Most of the manufacturers that source parts from Japan say they will slow or shutter some production facilities. That should have two effects. The first is that some of the models for which there is most demand, like the Toyota (TM) Prius, will become available at fewer and fewer dealers. Normally, that would drive up prices. Alternatively, buyers may wait until the shortage is over. In this scenario, car companies would be faced with a decline in sales just when they expected to be able to raise prices.

The National Automobile Dealers Association (NADA) says that the hike in gas prices has pushed people to buy used cars. That trend could gain momentum if there are fewer new models to choose from. Jonathan Banks, an analyst for the organization, said that both a slowdown in manufacturing and high fuel prices has caused consumers to shop used versions of cars like the Prius. He sees a potential increase in this activity as parts shortages grow.

If consumers again delay the purchase of new cars, this could put auto manufacturers through another challenging period like the one they went through in 2008 and early 2009. U.S. sales of cars and light trucks hit over 16 million in 2006. By 2009, however, that figure had dropped below 10 million. Car manufacturers expect American sales to run over 12 million units this year. Manufacturers have cut their overall labor costs and factory production enough so that at the 12-million-unit level most should make money. But 12 million may be a stretch if high gas prices and parts shortages become long-term problems for consumers.

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