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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Apr 3, 2013

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Edmunds.com increased the 2013 light vehicle sales forecast to 15.5 million due to growing optimism in the automotive industry.

The auto sales forecast was increased from 15 million to 15.5 million after consideration about consumer sentiment and market growth. The automotive industry has not reached this level of annual sales since 2007.

Despite worries about budget cuts from the Sequester, and the payroll tax increase, consumer spending for new cars has not seen a noticeable change yet.

Dr. Lacey Plache, chief economist at Edmunds.com, said consumers are likely just “tone deaf” to the political noise in Washington. She said consumers are unfazed by fiscal issues.

“The fact that the consumer has been immune [to turmoil] … made us more confident about what is going on this year,” she said to loans.org.

If any changes occur due to the Sequester, it will be a slow change, and therefore will not make a big impact. Plache said if people have time to adjust to change, the possibility for an impact usually decreases.

Despite both increases and decreases in consumer confidence this year, Plache attributes “wealth effects” that make Americans comfortable buying new cars. Increased home prices and a strong stock market have increased consumers’ confidence in their wealth. Edmunds said that a large percentage have refinanced their home mortgages, which could save a homeowner about $210 per month. This reduction in monthly payments opens up additional funds for a new auto loan payment.

Not only are the funds for new auto loans present, but the willingness is as well.  Edmunds attributes this willingness to the loosening of credit that auto financiers have enacted since the recovery began.

“Some people are able to get the financing they need when they weren’t able to get that before,” Plache said.

According to Plache, about half of car sales are financed by dealers, 20 percent by car leases and the remaining 30 percent are purchased with cash, bought with home equity or financed with auto loans from credit unions or banks.

The leasing sector will be impacted this year as well. More car leases are set to expire in the second half of 2013 in comparison to the same period last year. An increase in car leases, which do not require auto loans, means that more car shoppers will approach the auto buying market once again. They will decide if they want to buy a new car with an auto loan, begin a new lease or simply buy a vehicle with cash.

Plache predicts that car sales growth will not max out in 2013 because sales per driver and vehicles per driver number will remain below pre-recession levels even after this year’s growth.

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In 2006, the auto sales forecast was 16.5 million; in 2007, it was 16.1 million. After the recession hit, the forecast first dropped to 13.2 million in 2008, and then to a low of 10.4 million in 2009. Since the numbers bottomed out in 2009, the forecasts have steadily increased each year.

While auto sales are steadily increasing, new cars sales per licensed driver and vehicles in operation per licensed driver are still below pre-recession levels.

In addition, Plache said if interest rates start to rise, it could deter consumers from taking on auto loans. But she does not predict a large impact for 2013, or even early 2014. If any change occurs, Plache said it will be at the second half of 2014 since she believes the market has yet to max out.

“There is still room for growth,” she said.