Last week in Orlando credit unions from around the country were briefed on a critical component of the economy - the auto industry. Paul Taylor, Chief Economist for the National Automobile Dealers Association (NADA) presented key industry trends along with their implications for credit unions. Taylor's analysis covered detailed market segmentation on individual manufacturers, new versus used sales volumes, average loan amounts, loan to value ratios, and a forecast for industry sales for 2004. The statistics were placed within the framework of the macro economy, providing insight into how the outlook for the economy is likely to impact auto lending.
One of the most interesting topics from the presentation had to do with NADA's Dealer Optimism Index. The index reflects market concerns, and plots two variables: optimism and sales. A time series of the index shows there has been a strong historical correlation between these two variables. Said another way, the optimism variable is a strong predictor - or leading indicator - of future sales volumes. What is consequential for credit unions is where the index is currently. You can see from the graph below that it is trending towards strong sales into 2004. NADA's call for U.S. new car and light-duty truck sales is 16.8 million units. Credit unions make up about 16.7% of the auto-lending markets. The index could be a tool credit unions use to make some general forecasts about where new sales volumes are headed.
While the index points to robust growth Taylor did cite several factors that could influence their projections. Any unexpected Federal Reserve tightening could increase lease penetration rates and slow total light vehicle sales. Gasoline prices that spike upwards from current levels impact the economics of supply and demand. Where the dollar trades relative to foreign currency can either cheapen or inflate import prices. Any attempt at forecasting has to account for these variables.