New Orleans— Car buyers with subprime credit and those in their 20s and early 30s will be the driving forces behind U.S. auto sales growth in 2014.
Those two groups will make up most of the anticipated 600,000 additional car and truck sales this year versus 2013, said Thomas King, senior director of consulting and analysis at J.D. Power & Associates. His remarks came Friday ahead of the National Automobile Dealers Association annual conference.
Sales to those in Generation Y — loosely defined as those born after 1980 — will likely rise to 3.3 million in 2014 from 3 million last year, J.D. Power believes. And sales to consumers with subprime credit are expected to increase to 2.1 million from 2 million last year.
U.S. auto sales in 2014 are expected to rise to 16.2 million from 15.6 million in 2013.
Subprime consumers generally have credit scores of 640 and below, though cutoffs vary by lender. Scores range from 300 to 850; people with scores above 720 are generally given favorable interest rates, because they are seen as more likely to pay their bills.
The number of subprime car buyers has grown every year since 2009 — the trough of the auto crisis — though that number is still lower than 2.4 million subprime buyers in 2007.
“Yes, it’s up, but it’s still below historic levels,” said King, who added that historically low interest rates — it’s been about five years now that the Federal Reserve has kept interest rates tamped down — plus rapidly improving fuel economy among new vehicles have also helped those with poor credit buy a car or truck.
The average fuel economy of new vehicles jumped by 1 mile per gallon in 2013, to 24.8 mpg, according to researchers at the University of Michigan’s Transportation Research Institute.
“No matter who is buying,” King said, “this is a good time to buy.”
The surge of sales among younger buyers is a promising sign for the U.S. auto industry, and something automakers have been anticipating for years.
There is a common perception that those in Generation Y are not interested in owning a vehicle, but many studies — including one last week from Deloitte LLP — show that young car buyers do want to lease or own a vehicle, but the economic realities faced during the Great Recession pushed back their vehicle purchases.
In fact, fewer than one in 10 Gen Y members surveyed by Deloitte said they never plan to buy or lease a vehicle.
Sales to those in Generation Y totaled 1.2 million in 2009, according to J.D. Power. In 2013, sales jumped 20 percent, from 2.5 to 3 million.
The anticipated sales growth among those subprime consumers and young buyers comes despite rising new vehicle prices. The average selling price of new cars and trucks rose last year by about $700, according to J.D. Power, topping $29,000.
This year, that total could reach $29,700. That is expected to drive continued growth of long-term vehicle financing, which in some instances can now top 100 months, or more than eight years.