14 Factors that Determine Car Sales

February 15th, 2021 by PAautosales.com

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The United States of America is known as a car-loving country, with most households owning at least one car.
However, automobile sales in the country have not exactly been steady throughout the years, despite the
American people’s love for cars. There are several factors that determine car sales, and here we discuss them
to help you understand the automobile industry a little better.

Economic Factors
Economic factors are perhaps the most crucial factor affecting car sales. They include interest rates,
unemployment rates, Gross Domestic Product (GDP), disposable income, and exchange rates. All of these play
an important role in determining the number of car sales in a country, which, in turn, also determines the
performance of various other industries linked to the automobile industry, including plastics, steel, aluminum,
rubber, and computer chips, etc.

a. Interest Rates

Lower interest rates ensure easy automobile financing; thus, providing higher sales. On the other hand, higher
interest rates put even less expensive and smaller vehicles out of reach.

b. Disposable Income

Wage growth in the past year has been mostly negative. Even though we saw some positive wage increments
towards the end of last year, the growth isn’t enough to fuel the purchase of cars in the country as inflation, too,
has been on the rise. The low wage increment means car buyers do not have extra money or disposable income
to purchase vehicles after they cover their expenses.
c. Inflation

Inflation lowers the worth of money. If there isn’t an equal or greater wage increment, then there is an increase
in inflation, car buyers find it harder to meet expenses, and have enough disposable income to purchase a new
or used vehicle. Higher inflation also means a higher cost of buying a new car, which further adds to car buyers’
troubles.

d. Gross Domestic Product

According to a research study looking at the effects of economic factors on car sales, GDP has a positive
correlation with vehicle sales. The higher the GDP, the higher the GDP, the higher the buyer’s purchasing
power; thus, higher car sales.

e. Exchange Rates

The automobile industry is very competitive. A lower exchange rate means your competitors can efficiently
market their products in your country and you in theirs. It also provides customers cheaper alternatives,
increases their purchasing power, subsequently boosting sales.

f. Unemployment Rate

Goes without saying that a high unemployment rate in a country signifies lower purchasing power and lower
demand for cars.

Political Factors
Political outlook also plays a massive role in determining the demand for cars in the country. The government
decides which industry it wants to promote and devises favorable policies to encourage the said industry’s
growth.

If at some point, boosting growth in the automobile industry is not a government priority, then the industry may
find itself struggling to meet expenses, or get supplies at low cost, etc. All of these affect the vehicle sales in the
country. However, it is highly unlikely that the automobile industry will ever fall completely out of favor with
the government as it is a major contributor to a country’s GDP and a driver of the country’s economy.

Social Factors
Social factors include population growth, changing trends, demographic shifts, and so on. These directly
determine the values people have and their attitude toward vehicles, which in turn affect car sales.

g. Changing Consumer Trends

Millennials and the following generations do not seem as enthusiastic about vehicle purchases as baby boomers
were, and that can be for multiple reasons. There is increasing awareness about environmental concerns,
because of which environmentalists prefer eco-friendly ways to travel to reduce their carbon footprint.

There is also the burden of student loans and other debts that keep people from looking towards cars so as not to
add to their debt. Even if they do, they are focusing more on eco-friendly and fuel-efficient vehicles, thus
fueling the demand for one category of cars and lowering that of the others.
h. Demographic Shifts

An increasing number of millennials are shifting to and living in metropolitan cities, where public transport is
cheaper and faster than driving your car to work on the traffic-clogged streets. Thus, they only really consider
buying a car when they are settling down or starting a family.

i. Population Growth

The higher the population, the higher the demand for vehicles. However, population growth does not increase
the demand for cars overnight. It is a process, so if the population is growing now, the need for vehicles may
increase twenty years down the line, when those born today will finally be able to purchase a vehicle of their
own.

Technological Factors
Technology is often the most significant driving factor of the increase in sales of products in nearly every
category. It is human nature to go after the best, the latest, and the most advanced product available.
Technology also helps lower production costs, thus, lowering the prices and making them accessible to a wider
market.

Technological innovation also helps keep the spark alive. Companies also cater to their consumers’ demands by
ensuring they bring about the technological changes people covet. These changes can include better security
specs, faster and smoother performance, fuel efficiency, complete automation, and many other features that
enhance a vehicle’s appeal and consequently its demand and sales.

Other Factors
The ones mentioned above are those that play a direct and vital role in determining car sales. However, other
factors affect the demand for cars, including geopolitical factors, natural disasters, the popularity of car-sharing
services, etc.

j. Geopolitical Factors

Geopolitical unrest is a major disrupter of car sales. It affects a country’s economy, falters trade, affects
exchange rates, and in some extreme cases even affects GDP. It may even lead to economic unrest, which
lowers the demand for vehicles as an increasing number of people shift their financial strategies to focus on
saving more money to help through troubled times, in case the unrest turns into something worse.

On the other hand, favorable policies and mutually beneficial trade relationships wield a positive effect on the
demand for cars as they can lower production costs, provide more variety, and so on.

k. Natural Disasters

Natural disasters such as the pandemic also wreak havoc on the automobile industry. Currently, there are few
buyers in the market as many people are unemployed, most employed individuals are working from home, the
country is in lockdown, so transportation isn’t exactly a necessity at the moment. Other natural disasters such as
floods or wind and hail storms also lower the demand for cars as spending priorities change.

l. Car Sharing Apps

Lastly, the increase in popularity of car-sharing apps is another reason for the decline in car sales. People find
sharing a ride cheaper and more efficient than buying their own vehicle. It is a somewhat luxurious alternative
to public transport, where you get a chauffeur-driven car to take you places, but you don’t have to worry about
finding a parking spot, paying off car loans, or worry about maintenance and insurance payments.

Concluding Note
There are several factors that determine car sales. We have tried to cover the most important ones, so you
know what factors to look into when purchasing a car. Make sure you look into economic factors, as these play
a huge role in determining the demand for automobiles in a country. A period of an economic downturn may
result in you getting a poor deal on your vehicle purchase. Thus, we suggest you do your research before you
make that down payment on your vehicle.