Data released this week showed that auto sales rose to their highest levels since the “Cash for Clunkers” program ended in in the summer of 2009. Total vehicle sales climbed to a 13.4 million annualized rate in February, a 27 percent increase from the previous year. In the United States, domestic sales in February matched the 10.2 million annualized rate seen at the height of “Cash for Clunkers”. Sales have been trending upward and will likely continue their trajectory as dealers are cautious of overbuilding inventories. Moreover, between 2000 and 2007, total sales averaged 16.8 million vehicles a year compared to 11.8 million a year since 2008, suggesting that there is some pent-up demand for new vehicles that will propel sales further throughout the year.

Retail sales at motor vehicle and parts dealers have also been on the rise. As consumers feel the economic recovery taking hold, their willingness to make large purchases is increasing. Overall confidence in the economy has improved for six consecutive months and, while historic data on “plans to buy and auto” is limited due to recent changes in it collection, the series edged up to 13.2 in February from 10.9 in January.

We (Wells Fargo) expect vehicle sales of 13.3 million for 2011.

Source: Wells Fargo Securities