ALBUQUERQUE, N.M. — Annette DiLorenzo noticed the trend in the service department of her family’s car dealership.
Drivers were showing up with well-worn vehicles and then shelling out for major fixes – sometimes, she said, spending more than the car was worth.
“People just decided they were holding onto their car,” said DiLorenzo, the dealer principal at Quality Mazda. “They had other (financial) priorities and they were choosing to repair them rather than trade them in.”
But not so much anymore: “People are just now starting to come out of that,” she said.
In other words, people are buying new cars again. Quality Mazda’s sales increased nearly 20 percent in 2012 over 2011, DiLorenzo said, and her family’s Buick/GMC dealership saw similar growth.
Nationally, auto sales reached a five-year high in 2012 with 14.5 million vehicles sold – a definite bright spot in an otherwise slow economic recovery.
Charles Henson, president of the New Mexico Automotive Dealers Association, estimated that sales at the 130 franchise dealerships that NMADA represents increased about 16-17 percent in 2012.
“Over the last two years, we’ve seen a gradual increase and definitely an outperformance of the general economy,” Henson said, “but (there was) a substantial increase from ’11 to ’12.”
Henson couldn’t provide exact sales figures, but data tracked by auto industry research firm Polk point to an impressive 2012.
Even without including December (for which data wasn’t yet available) there were 8.8 percent more new light vehicles – light trucks, SUVs and cars – registered in New Mexico during 2012 than 2011, according to Polk.
Henson said low interest rates have been a major factor in the surge. Local dealers also pointed to a loosening of credit, improved consumer confidence and pent-up demand.
Montaño Acura owner Jim Edens said his Albuquerque dealership saw a 27 percent jump in sales in 2012, an increase on par with Acura’s national numbers.
A 2012 Polk report indicated that the average age of a car on the U.S. roads had reached a record high of 10.8 years, so dealers say the 2012 sales increase was something of a natural rebound.
“Cars do last longer than they’ve ever lasted, but at some point in time people have the urge to buy a new car for whatever reason, and I think that’s what’s happening now,” Edens said. “There’s a lot of pent-up demand. People have a little bit better outlook on the economy and where the economy is going and they feel they’re more comfortable buying a new car.”
Customers who would typically trade in their cars every three years skipped a cycle during the recession, Edens said, and they finally upgraded in 2012.
Interest rates have certainly helped with motivation.
“We haven’t seen rates like this for 40 years, and they’ve been able to maintain these rates for a couple of years,” Edens said.
Henson said credit unions in particular have stepped up their auto lending, which has in turn led to better deals all around. Dealers frequently advertise zero-percent interest rates on loans procured through the automakers’ lending arms.
“The in-house financing – which in our terms are the manufacturer financing (programs) or captive financing – they have to remain competitive, so this increase by the credit unions is one of the reasons that you see such competitive rates on financing now,” Henson said.
Kirtland Federal Credit Union’s auto lending increased 40 percent in 2012, said Kris Jones, vice president of loan originating and underwriting.
Jones cited a few reasons for the growth, chief among them KFCU’s more proactive approach. The Albuquerque-based credit union made a concerted effort to establish relationships with car dealerships last year, he said, and roughly 90 percent of the institution’s auto lending was initiated “indirectly” through the dealerships.
Interest rates were a big factor, too. As of Feb. 1, KFCU advertised an annual percentage rate as low as 1.74 for a 36-month loan on a vehicle from 2010 or later and 2.24 percent for a 65-month term.
KFCU’s steep increase in auto lending was due to “a lot of different things, kind of the perfect storm – low interest rates, trying to touch the dealers, having pent-up demand,” Jones said. “All of that plays a part. It was dramatic for us.”
New Mexico Educators Federal Credit Union – with 135,000 members, the state’s largest credit union – actually started seeing more demand for auto loans in 2011, said Anneliese Elrod, senior vice president of marketing and membership development. That demand was sustained throughout 2012.
“Certainly one of the biggest parts of that is the rate, and we start at 1.99 (APR) for our auto loans,” she said.
Rates aren’t likely to rise soon as the Federal Reserve has committed to keeping interest rates low while unemployment remains high.
DiLorenzo said a wide spectrum of customers have benefitted from the low rates, even those without sterling credit.
“It’s pretty interesting for me to see,” she said. “It’s almost like they’re asking, ‘Please buy a car, so you can get your credit back, and we’ll keep the interest low.'”
Dennis Synder, president and general manager at Rich Ford, said attractive financing has prompted some customers to look for vehicles with additional bells and whistles, a trend he expects to continue this year.
While Henson pins most of the sales’ increase on good rates, he said they don’t tell the whole story. Lower payments are still payments, and Henson speculated there’s another, more visceral reason that consumers are willing to take them on in a still-shaky economy.
“I have no scientific backup for what I’m about to say, but I think it’s because Americans love their cars, and that is very much the case in New Mexico,” Henson said. “They like to be in a new car, they like to be in a very nice car. I think America still has not yet and hopefully never will abandon its love affair with the car.”
Edens said the industry is still not where it was six or seven years ago, but the outlook has definitely improved. Experts are forecasting another increase for 2013.
“We’re on a nice upward trend,” he said.
The Associated Press contributed to this report.