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Car sales are projected to climb in October

Date posted:  11/27/14 01:15:00 PM Car sales are on the way up in October.

If the sales of new cars offer any indication for the nation's economy, the outlook just got a little bit brighter. New light-vehicles sales in the U.S. are projected to increase by roughly six percent in October from the same month a year prior.

In a dual projection from new and used car sources - LMC Automotive and J.D. Power - projected sales of new cars is set for 1.27 million in October, the best volume for the month since 2004.

"The current environment of the auto industry is one of strength and stability, with the second half of the year at a 16.6 million-unit pace, more than making up for the 16.1 million-unit level in the first half of 2014," Jeff Schuster, senior vice president of forecasting at LMC Automotive, said in a statement.

The auto market is now showing a second surge in the popularity of SUVs, which could have something to do with gas prices reaching their lowest levels in nearly four years, according to Automotive News.

The price for a gallon of gas dropped 18 cents in the last two weeks to a national average of $3.08, the lowest price since December 2010.

Schuster believes SUVs are once again gaining popularity because auto manufacturers are offering a wide range of choices. He expects SUVs to "dominate market share for the foreseeable future."

Kelley Blue Book expects the sales rate of compact SUVs and crossovers to increase 14 percent in October and six percent for full-size pickup trucks. Meanwhile, midsize automobiles and compact cars are projected to produce modest sales gains. However, they are expected to lose some market share due to the growth of SUV sales.

Is long-term financing fueling higher sales totals in the auto industry?
Consumer spending on new vehicles is expected to surpass $32.5 billion in October, which would be the highest level ever for the month of October. The previous best was seen in 2013 when consumers spent $30.7 billion.

"The industry continues to demonstrate strong sales growth and robust transaction prices, resulting in another record-breaking month for industry consumer spending," John Humphrey, senior vice president of the global automotive practice at J.D. Power, said in a statement.

While improved economic conditions have helped spur the auto industry to have better sales, Humphrey believes longer-term financing has helped make car purchases more affordable on a monthly payment schedule.

The report stated 32.6 percent of all vehicles purchased in October have been financed with a term of 72 months or longer. That matches the record set in July 2014.

Cash-strapped homeowners hoping to make headway with an automobile purchase should look into a home equity line of credit. This line of credit is given to qualified borrowers who put their home up as collateral. In turn, the borrower can use the credit line for a down payment on a car, home renovations or student loan repayment.

Are American consumers buying cars because of incentives?
Alec Guiterrez, a senior analyst with Kelley Blue Book, said his firm is growing a bit concerned with the auto market because the ratio of incentives compared to average transaction prices has increased to the highest total since 2010. Incentives could include cash back, financing offers and leasing deals.

"Since inventory levels have remained consistent, this isn't a red flag yet, but it does underline that the national industry growth we've had in recent years is slowing," Gutierrez said in a statement.

Prospective car buyers should browse potential incentive offers by manufacturer before making any buying decision, according to Edmunds, a resource for automotive information.