There was much celebration yesterday as August auto sales reached their highest level since 2009, when the government sponsored Cash-for-Clunkers program expired.
Preliminary data showed that total vehicle sales reached 14.5 million unit rate annualized, up 16 percent from a year ago.
While this was certainly prompted by pent-up demand, Gluskin Sheff's David Rosenberg writes that the 14.5 number is still below trend, and also up because lending to subprime consumers is rising (emphasis ours):
"Let's put 14.5 million into some sort of perspective. In December 2007, the first month of the Great Recession, sales ran at a 16 million unit rate! From September 1998 through to March 2008 – a 10-year time frame that spanned the winding down of Long Term Capital Management to the demise of Bear Stearns – not one month did we see a number anywhere as low as 14.5 million (in fact, not one month was below 15 million).
While there may well be some pent-up demand (the average age of the existing fleet is more than 11 years old and it turns out to be a solid model year lineup in 2012), a primary reason why auto sales are surprising to the upside is because lending to consumers with subprime credit records is surging and makes up more than 25 percent of all new car loans – actually exceeding the prior peak bubble levels in 2007."
This chart from Rosenberg shows historical levels of auto sales:
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