First off, the automotive sector is doing quite well on many fronts. Nothing should take that away from them and their efforts to build and promote new models that appeal to the consumer marketplace should not go overlooked. Both American and foreign automakers have produced models that hit a broad swath of the marketplace. But, we do have to peel back a few layers of the onion and see if there are underlying trends that would suggest to us whether this strength can continue. Here are a few of the drivers of business for the sector:
We know that the disasters in Japan and Thailand have both created a problem and backlog for some of the most popular models. Customers, when making their second largest purchase (next to a home), are likely to wait for availability of "exactly" the model they want. Very few will just "settle" for a vehicle that is more likely a 5-10 year decision these days (that's the new life expectation of a vehicle these days). So, some of the demand we see for auto sales are primarily in the inventory replenishment and meeting pent-up demand created over the past six months.
Secondly, there is a little discussed trend that many analysts are overlooking; we'll bring it up here for the first time. We've mentioned many times that the Baby Boomer Generation is retiring at the rate of about 10,000 a day - and it will be that way over the next many years. So, what do many retirees do when they are just a couple of years away from moving to fixed incomes? They make large purchases and update their vehicles, certain elements of their homes (windows, roof, certain HVAC pieces, etc.). They want to get set for retirement and will purchase items that normally would carry a monthly payment to get them paid for before retirement. Therefore, we see a little bit of the auto market reacting to this change.
Lastly, we know that a number of foreign automakers have moved a lot of additional production to the US. Because of global supply chain issues, increasing production in the United States is a key to helping to secure and build redundancy in the supply chain.