Auto sales likely to fall slightly in 2006, economist says

U.S. auto sales will fall slightly in 2006 because of the impact of rising interest rates, the chief economist for the National Automobile Dealers Association said Saturday.

Photo: Auto sales likely to fall slightly in 2006, economist says

"Price matters in this market. This is an increasingly price-sensitive consumer," economist Paul Taylor said on the opening day of the NADA's annual four-day convention.

Taylor predicted new vehicle sales will total 16.8 million in 2006, down from 16.947 million last year. That's because it will cost consumers more to finance their vehicles, he said.

On Jan. 31, the Federal Reserve raised the key federal funds interest rate to 4.5 percent, its highest level in five years. Many economists predict the Fed will raise the rate further next month.

Taylor said the number of months' salary it takes to finance a vehicle had been falling since the mid-1990s but is on the rise because of interest-rate hikes. The average number of months was 26.2 by the third quarter of 2005, up from around 20 in 2002 and approaching the recession-era level of 30.2 months in 1990.

The average transaction price for a new vehicle in 2006 will be $28,000 (Ђ23,392), Taylor said, while the average price for a used vehicle will be $14,840 (Ђ12,398).

"These are big-ticket items for consumers. They're going to be sensitive to interest rates," Taylor said.

But the news isn't all bleak for auto dealers. Consumer confidence is on the rise along with household wealth, which should give luxury vehicle sales a boost, Taylor said. The number of licensed drivers also is expected to increase by a robust 1.5 percent in 2006 as the largest generation since the Baby Boomers continues to reach driving age.

Taylor also said used-car sales are expected to show some strength this year. Used vehicle sales have risen steadily since the 1980s but dropped sharply in 2002 as incentives and low interest rates made new vehicles more attractive, reports AP.

O.Ch.