TOPICS > Economy

Why Auto Sales Surge Even as Gas Prices Rise

April 3, 2012 at 12:00 AM EDT
Auto industry sales jumped 6 percent in March with almost 1.4 million new cars and trucks sold -- the highest number since 2008, according to new reports released Tuesday amid Detroit's $200 million deficit. Gwen Ifill and David Shepardson of The Detroit News discuss what's behind the continued surge in sales.
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GWEN IFILL: And we turn to what’s behind the continuing surge in sales as the American auto industry turns in its best quarter in years.

The auto industry continued its rebound today on news that sales jumped 6 percent in March, with almost 1.4 million new cars and trucks sold. That’s the highest monthly number since 2008.

WOMAN: This is my world.

GWEN IFILL: Chrysler sales were up 34 percent, partly due to its heavily promoted line of small Fiats and of its sedans.

CLINT EASTWOOD, actor: I have seen a lot of tough eras, a lot of downturns in my life.

GWEN IFILL: The company’s dramatic two-minute Super Bowl ad featuring actor Clint Eastwood two months ago declared the Motor City back on its feet.

CLINT EASTWOOD: This country can’t be knock out in one punch. We get right back up again. And when we do, the world is going to hear the roar of our engines. Yes. It’s halftime, America. And our second half is about to begin.

GWEN IFILL: As gas prices continue to rise, so have sales of small and fuel-efficient cars. For General Motors, that meant a 12 percent jump. For Ford, which has attracted buyers to its Focus small car and F-Series pickups, the net gain was 5 percent, its best in five years.

The robust sales were not limited to domestic manufacturers. Toyota, Nissan and Volkswagen all reported double-digit sales jumps and Hyundai also said it expected to set new sales records. But as the auto industry shows signs of revival, the city of Detroit still copes with a $200 million deficit. City leaders are debating whether to accept a bankruptcy deal from the state of Michigan.

For more now on the improved state of the auto industry, we turn to David Shepardson of The Detroit News. He’s in New York tonight covering the auto show, of course.

David, you’ve been covering this story for a long time. These numbers seem almost too good to be true. What’s driving them?

DAVID SHEPARDSON, The Detroit News: I think there are a lot of factors.

Number one, the economy is doing better. Employment is up. People feel more confident about their own financial situation and they’re buying a new car. And one of the main reasons is their old car is probably 10, 11 years old. In fact, the fleet is at its oldest level in 30 years.

And so people’s old cars just can’t go much longer. And they’re seeing those high gas prices and thinking, hey, maybe is it time for me to move to something a little better?

GWEN IFILL: But I sometimes wonder when we look at numbers like this whether we’re excited about the meeting expectations or exceeding expectations or an actual gain.

DAVID SHEPARDSON: No, I think these are really — these are really good numbers.

I mean, as you pointed out, Hyundai, Nissan, Kia had their highest monthly sales ever in the U.S. The Detroit Three really made some big gains fuel-efficient vehicles. General Motors sold 100,000 vehicles that got over 30 miles per gallon.

A company like Chrysler, which a few years ago only — didn’t have any vehicles that could get over 30 miles per gallon, now have seven vehicles. So these are real gains. And it’s a very competitive marketplace out there. But you can see the evidence of this in part by the auto companies adding more shifts, more employment.

And this is really getting back to sort of a pre-recession level, you know, before we had a huge drop-off in sales.

GWEN IFILL: More cars are being sold. But are they also more expensive cars, which drives up the profit?

DAVID SHEPARDSON: Oh, they absolutely are more expensive, for a couple reasons.

Number one, over the last few years, the U.S. didn’t build as many cars as we would have expected because of this slowdown in the economy. As a result, there are fewer used cars out there. And then we had cash for clunkers, which took about 700,000 cars off the roads. So the price of used cars has gone up. The supply has gone down, which makes new cars more attractive because the level of difference between used and new cars is smaller.

So as a result, people are also looking at those high gas prices and saying, hey, the same car in the segment I’m in, a mid-sized SUV or a compact car or what have you, that vehicle might be 20, 25 percent more efficient than that vehicle that I have been holding on to for 10 and 11 years that, frankly, after all that time doesn’t run as well.

GWEN IFILL: But, David, if the gas prices are going up, wouldn’t that depress car sales, instead of driving them upward?

DAVID SHEPARDSON: Well, we would have thought that in — and that’s what happened in 2008, remember, when prices spiked above $4 a gallon and people panicked and dumped their SUVs at whatever cost it took.

But now people are more confident. And they’re saying, you know, I’m used to this price. I don’t like it. And they’re seeing the fact that you go to the dealership, you buy a car that’s more fuel-efficient, you can see real savings. Take a Ford Escape. Over the last 10 years, it’s gone from about 20, 25 percent more fuel-efficient. Well, that turns into real money, especially when gas prices are at $4 a gallon.

I mean, the alternative is not going to use a car. You have to use a car. And so I think more customers are saying, hey, let’s get out of an old, less efficient car and let’s buy a new fuel-efficient car.

GWEN IFILL: The other thing you have been covering consistently is the efforts to rescue the domestic car industry. Yet these numbers show that foreign carmakers are doing as well, too.

DAVID SHEPARDSON: Right. Exactly.

One interesting thing, the Obama campaign manager today tweeted the results and focused on the Detroit Three and tweaked Gov. Romney, noting that he had written that op-ed, let Detroit fail. So, this is going to stay in the midst of the political campaign.

But you’re right. This is not just a Detroit revival. You know, the Japanese auto companies, which were hurt by the tsunami and the earthquakes in Japan and then flooding in Thailand, have really gotten back on their feet. They’re sending — they’re building new, more fuel-efficient vehicles.

And all the companies, you know, the Germans, the Koreans are bringing new — new models to the U.S. because this has become such a super-competitive market. And when you look at what’s happened in Europe, where, you know, auto sales are not doing well, and China has put some brakes on auto sales, the U.S. is now, you know, the most profitable auto market, which is why you see so much emphasis by all the companies on selling cars here.

GWEN IFILL: How much of this good news, if any, is trickling down to a city like Detroit?

DAVID SHEPARDSON: You know, not as much as you would think.

Remember, in the early part of the 20th century, there were 125 auto companies in Detroit. There were hundreds of factories. The city became the fourth largest in America, had two million people. The city’s lost two-thirds of its population, and has just over 700,000 people. There are only two major car factories in Detroit today, a GM and a Chrysler plant.

And there are just 10,000 to 20,000 workers in Detroit that are in manufacturing. So, yes, you know, GM is still headquartered in Detroit. They’re a large taxpayer. There’s a lot of salaried people that work in the city, but not as many people work in the Motor City actually build cars. So it helps the region certainly as a whole, but the city itself, given all of its financial problems, is not going to be saved certainly by the uptick in the auto industry.

GWEN IFILL: And, David, finally, also, good weather doesn’t hurt, does it?

DAVID SHEPARDSON: Yeah. It’s one of the interesting things. People don’t want to buy cars when it’s snowing and icy. You don’t want to buy that brand-new car and have an accident.

And so people — or get salt on the roads. You try to get a few extra miles out of your old car until the winter — we get through the winter. Well, it’s been an incredibly mild winter this year. And as a result, hey, people are going to the dealership early and buying that car and saying, hey, maybe there isn’t going to be a full-fledged winter.

And so we don’t know how much of the nice weather has pulled forward sales from later in the year. It certainly has had some impact. So, it’s something to be cautious about. Will these, you know, really strong sales in the first quarter, you know, continue through the rest of the year? We could see a little bit of a reduction as we go forward.

GWEN IFILL: Right.

Well, happy spring to you, David Shepardson of The Detroit News. Thank you.

DAVID SHEPARDSON: Thanks, Gwen.