Automotive Demand Index Strong As The Stimulus Kicks In

Automotive Demand Index Strong As The Stimulus Kicks In

TechnoMetrica's Auto Demand Index shows good momentum and forecasts new car sales will be strong in the coming months.

Robert Austin
Robert Austin

The TechnoMetrica Auto Demand Index (ADI) increased by 7-points, or 3.5 percent, to 185 in April, for the second month in a row.  

The average ADI for the fourteen months since the pandemic began is 167, compared to 185 this month.

What Is ADI?

TechnoMetrica Market Intelligence developed the Auto Demand Index, or ADI, as a way to measure the intent of consumers to buy or lease a new vehicle within the next six months.

Each month we conduct a national survey with 1,200 adult Americans and ask the critical question, "How likely is it that you will buy or lease a new vehicle within the next six months?"  Based on the responses to the question, we compute an index score. For example, in our April survey, 15.1% of respondents said they are very likely to buy or lease a new vehicle, and another 15.5% said they are somewhat likely to do so.  We index these purchase intent levels to our anchor -- i.e., vehicle purchase intent level of 16.5% in the first quarter of 2007 to 100.

TechnoMetrica has been tracking auto demand since 2007, and the data is a good predictor of what will happen in the future.  The index's valuable intelligence can help OEMs and their suppliers plan production and incentive programs and take proactive measures.

From March 31 to April 3, TechnoMetrica polled 1,436 adults online using a sample taken from its online panel network. The credibility Interval for the survey is +/- 2.8 points.

Momentum

Despite a slight drop in April's momentum, our momentum indicator for auto demand remains strong.   Since we began tracking in February 2007, the indicator reached its all-time highs in December and January at 15.6.

We use the difference between the 6-month exponential moving average (fast average) and the twelve-month exponential moving average (slow average) as our momentum indicator.

The most recent available sales data indicate that the seasonally adjusted annual rate was 17.7 million in March, the highest level since September 2019.

U.S. Bureau of Economic Analysis, Light Weight Vehicle Sales: Autos and Light Trucks [ALTSALES], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/ALTSALES, April 22, 2021.

Sizing Up The Current Environment

As the economy returns to normalcy, consumer spending will increase, resulting in an overall GDP recovery.

At TechnoMetrica, we believe that as we move closer to herd immunity, the economy is getting ready for a significant acceleration.  We anticipate that the rebound will be decisive, allowing us to put the pandemic's dark days behind us. Numerous prominent economists share our enthusiasm.  "A rising tide lifts all boats," and a stronger economy benefits everyone.

According to our TIPP Economic Optimism Index, released earlier this month by Investor's Business Daily, its sponsor, consumer morale is up for the fourth month in a row, a leading nationwide survey on consumer confidence.  After reaching 55.4 last month, the index increased another 1.8 percent to 56.4, drawing closer to the pre-COVID reading of 59.8 in February 2020.

The average for the fourteen months since the pandemic began is 50.2 compared to April's reading of 55.4.

Hot Demographic Segments

The hot demographic segments are parents, households with incomes $100K+, those in the 25 to 44 age group, and urban households.  Regionally the West is most bullish, followed by the Northeast and the South.  The Midwest finishes last. Urban areas are hot, suburbs are moderate, and rural regions are cool.

Time Frame

The average purchase lead time shrank even more to 98 days.  The narrowing time frame reflects the momentum of the market and consumers' eagerness to buy a new vehicle.  The chart below presents the historical data for the past-16 months. Note the decreasing trend line.

Luxury vs. Non-Luxury

The luxury market is booming.  For the third consecutive month, the luxury segment's share increased.  We anticipate a ratio of approximately 44 percent luxury to 56 percent non-luxury sales.

We expect the sales ratio between Asian, European, and American OEMs at 33%, 32%, and 34%, respectively, which may be the closest we have ever seen the market share in this country split equally among the vehicle manufactures of these three global areas.

Hot Vehicle Types

Mid-size (17%), Compact (17%), and luxury SUV (13%) are the most popular, followed by small SUV (12%) and sub-compact (12%).

Hottest Brands

We see a three-way tussle between Ford, Toyota, and Chevrolet for the non-luxury segment. BMW, Audi, and Tesla lead the luxury segment.

Bob Austin's View

Americans continue to express their optimism through the purchase of new cars.

While expressing increasing concerns about global warming and the environment, their desire to drive larger SUVs has not diminished.

Ford, with its new electric Mustang Mach E, and GM with its new electric Hummer EV, may find themselves parked exactly at the intersection of environmentalism and SUV practicality!  It will be interesting to watch.

Another factor that can positively affect car sales is the "return to the suburbs," precipitated by being trapped indoors with small children during the COVID lockdown for the past year.  While young families had been getting more urban over the past decade, the lockdown has shown them that, particularly for young families, it is convenient to have green space outside that you can call your own.

Raghavan Mayur's View

TechnoMetrica's auto demand forecast was accurate, as evidenced by actual auto sales.  

We expect that auto sales will likely reach an all-time high in the coming months, surpassing the previous high of 17.9 million units annual rate set in September 2017.

The broader economy is improving, which will have a positive effect on the automotive segment.  As the pandemic situation improves, a significant increase in demand is reasonable.


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