Motor vehicles, model year 1992 - sales of new cars and trucks

Survey of Current Business, Oct, 1992 by Larry R. Moran

Model year 1992 marked the first improvement in the motor vehicle industry in 5 years; however, the improvement was slight. Sales, employment, and production each increased modestly in 1992, and inventories remained lean.

Sales of new motor vehicles in the United States edged up 1 percent in model year 1992 to 12.9 million units after decreasing 10 percent in 1991 to 12.8 million, the lowest level since 1983 (table 1).(1) Sales have declined in 4 of the last 6 years after reaching a peak of 16.1 million in 1986. The 1992 increase in motor vehicle sales was more than accounted for by sales of trucks. Sales of domestic-nameplate trucks and of transplant trucks increased, and sales of imported trucks declined.(2) Sales of cars declined; sales of both domestic-nameplate and imported cars declined, but sales of transplant cars edged up.

Employment in the motor vehicle industry increased 3 1/2 percent to 811,492 in model year 1992 after falling 5 percent in both 1991 and 1990, and the average weekly hours of production workers increased to 42.5 in 1992 from 42.0 in 1991. Capacity utilization for the motor vehicle industry increased 4 1/2 percentage points to 70 1/2 percent.

Motor vehicle sales have behaved atypically during the current business cycle.(3) Usually, motor vehicle sales lead the recovery and are strong in the first year of the recovery (chart 1). However, in this business cycle, motor vehicle sales reached their low point of 12.3 million units (seasonally adjusted annual rate) in the same quarter that the economy reached its low point - the first quarter of 1991. In addition, the 1-percent increase in sales in model year 1992 was well below first-year increases in other recent recoveries; for example, sales increased 15 1/2 percent in model year 1983 after 4 years of decline, and they increased 26 percent in model year 1976 after 2 years of decline.

Factors affecting 1992 sales. - Typically, motor vehicle sales jump sharply in the first year after a recession, reflecting both 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. In model year 1992, sales were held down by three inter-related general factors that are usually associated with expenditures for durable goods: Real disposable personal income (DPI) increased only 1 1/2 percent, well below the normal increase in the first year of a recovery; the unemployment rate increased for the third consecutive year, to its highest level since 1984; and the Index of Consumer Sentiment - prepared by the University of Michigan's Survey Research Center - declined for the third consecutive year, to its lowest level since 1982. There was evidence that some pent-up demand may have been released in model year 1992: Real personal consumption expenditures for motor vehicles increased 3 1/2 percent, considerably more than the increase in real DPI.

Motor vehicle sales in 1992 may have been bolstered by several factors that are specific to the motor vehicle market: Finance terms on new-car loans, sales-incentive programs for consumers, and new-car prices. Finance terms on new-car loans were more favorable in 1992 than in 1991 (chart 2). First, interest rates were lower; for loans made by auto finance companies, rates averaged 10 1/2 percent in 1992 after averaging 13 percent in 1991. 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 89 percent in 1992 from 87 percent in 1991.

Manufacturers offered attractive sales-incentive programs to consumers throughout model year 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 1992 than in 1991. The consumer price index (cpi) for new cars increased 2 1/2 percent after increasing 3 percent in 1991. In contrast, the average expenditure per new car increased more in 1992 than in 1991: It was up 6 percent to $17,563 after increasing 4 percent in 1991.(4) The 1992 increase in the average expenditure reflected increased purchases of options (such as driver-side airbags, antilock brakes, automatic transmissions, and power windows) rather than an upscaling in the size class of cars purchased.

Two market-specific factors may have dampened sales in 1992. First, manufacturers' marketing programs for fleet sales to businesses were less attractive in 1992 than in 1991.(5) Under these programs, manufacturers agree to repurchase fleet cars after they reach certain minimum age and mileage requirements. The fleet marketing programs offered in model year 1992 had slightly higher age and mileage requirements than those offered in 1991; these higher requirements probably encouraged companies with fleets to wait longer to purchase new cars. Second, 1992 sales may have been affected by another substantial increase in the cost of car ownership. The cost of car ownership increased 8 1/2 percent in 1992 after an 11-percent increase in 1991, according to a study by the American Automobile Association.