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Auto sales trending up, experts still anxious

Date posted:  2/13/14 07:30:00 AM New automobile sales should easily pass the 16 million sales mark in 2014.

If consumers are a door, company incentives are the key, according to Jared Rowe, president of Kelley Blue Book.

Rowe said U.S. automotive sales appear likely to top the 16.3 million mark in 2014, and the industry could even blow past the 16.8 million level if automakers rev up some of their incentives.

"Overall, we see a good healthy opportunity for growth this year, but it will be interesting to see what path we decide to take as an industry," Rowe said at the North American International Auto Show in Detroit, according to the Detroit Free Press.

Big gains, but experts still anxious about the future
Automotive sales have posted increases four years running, and sales figures are expected to rise again this year, possibly returning to a pace not seen since 2007.

Still, a growing worry for many in the auto industry is that automakers will slash some of the incentives that helped boost sales totals, making it less financially viable for U.S. consumers to purchase vehicles as the carmakers chase an increased market share.

"You could see some pressure on the quality of profits," Hans-Werner Kaas, a senior partner at McKinsey's automotive practice, told Reuters of the U.S. market.

Kaas is concerned that automakers will drop the pricing discipline they have grown with since the low point of the recession in 2009, which was when Chrysler and General Motors filed for bankruptcy protection.

If automakers offer fewer buying incentives in 2014, some potential buyers might be pushed from the market. Homeowners that can't afford to put a down payment on an automobile should consider a home equity line of credit. This type of credit asks a borrower to put their home down as collateral, and in turn, they will receive a line of credit that can be used for an automobile, home renovations or student loan repayment.

Market share and production
In the 10 years prior to the recession, the nation's automobile market averaged 16.7 million new-vehicle sales per year, according to Reuters.

While the 16.3 to 16.8 million sales prediction from Rowe sounds positive, and could be a 5.8 percent increase in sales, it would still be down from 7.6 percent growth in 2013.

"We're out of the restructuring phase and out of the riding the normal recovery growth and I think sometime at the end of 2014, or somewhere in 2015 — the growth from the 10-plus million cars in the U.S. to somewhere between 16 and 17 will be gone," Xavier Mosquet, Boston Consulting Group's senior partner and managing director, told Reuters.

Supply of cars in the U.S.
The existing supply of vehicles in the U.S. is currently four percent higher than it was in 2007, according to Kelley Blue Book.

Automotive sales, which have gained traction over the last several years since the burst of the housing bubble, have escalated at an average annual rate of 10 percent per year, according to the Free Press. That sales rate comes despite the increasing average purchase price for a car. The average price has gone from $29,572 in 2007 to $32,077 in 2013, according to Kelley Blue Book.

And U.S. automotive sales surged in nearly every category in 2013, according to Alec Gutierrez, a senior analyst with Kelley Blue Book. 

A simple reason why more cars are selling now than a few years ago?

Gutierrez said new cars are simply much better now than they were just a few years ago. The Free Press pointed to the increase in average horsepower now installed in a new car or truck. Since 2007, average horsepower has swelled four percent to 237 horsepower.