U.S. auto sales kicked into overdrive in August suggesting maybe the economy isn't so bad after all. Sales increased 17% for the month pushing the annual sales rate to over 16 million for the first time since 2007. AutoNation (AN) got more than its fair share of the growth as it saw 32% gains in August, its best month in a decade. CEO Mike Jackson tells Breakout the gains are being driven by pent up demand and a sustainable economic recovery.
"We had a depression in automotive. When people stopped buying cars in 2008, 2009 and 2010 that pushed the average age up to over 11 years," Jackson points out in the attached clip. Customers coming into dealerships will find cars that get 24.6 MPG on average; more than 20% higher than what was seen in October of '07. That mileage boost reflects a vast improvement in cars across the board as the financial crisis forced the industry to get better or die.
Better product is only part of the story and replacing an ancient clunker wouldn't account for a run rate above 16 million. Cars are the quintessential big ticket discretionary item which is a fancy way of saying no one is going to spend $30,000 on something they don't need unless they have a job. While GDP is stuck somewhere around 2%, annual auto sales have grown by more than 38% since August of 2011. Jackson takes the improvement as evidence that the economic recovery is self-sustaining.
"I think the initial stages of the auto recovery were driven by pure replacement need and the healing of credit," Jackson says, "I think now the economy has moved into a self-sustaining recovery." As a result of the housing recovery, an energy boom, and innovation Jackson thinks the days of QE will be coming to a close before the end of the year.
You care what Mike Jackson thinks about the economy because he runs the biggest auto retailer in the country. His business is almost as good an economic tell as Walmart (WMT) sales. If he thought the auto recovery was just a low-rate phenomenon the last thing on Earth he'd do is argue for the end of QE.
Something has to be going right in the country if Americans are buying cars at this rate without absurd "cash for clunkers" programs. It's safe to consider the August data as more evidence that the worst of our economic recovery is finally in the rear-view mirror.
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