Upbeat consumers keeping auto sales surging

A salesperson (left) shows vehicles to a shopper at a Toyota dealership.
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Rob Paddor is loving life right now. The owner of a Subaru dealership in Skokie, Illinois, is coming off of the best year he's ever had in the auto business—sales are up 30 percent year over year, and 2015 is looking to be even better.

"I have little or no inventory," said Paddor, who's been in the auto business for more than 30 years. "As soon as we get new models, they're gone. People are ready to buy right now."

Paddor's not the only new car dealer seeing record sales. Across the country, dealerships are experiencing a rare combination: strong demand, strong pricing and no sign of it slowing down in the near future.

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"January is a low-volume month, but the early signs are good," said Michelle Krebs, senior analyst at AutoTrader. "Consumer confidence and continued low gas prices are driving a lot of people to buy a new car or truck."

Consumer confidence is perhaps the best indicator of why auto sales are running so strong. For years, it's been clear that as consumer confidence goes, so go auto sales. The most recent reading has consumer confidence at its highest level since 2004. Not surprisingly, auto sales this year are expected by many to reach or exceed 17 million vehicles for the first time since 2001. Last year, U.S. auto sales totaled 16.52 million vehicles.

Along the highway

What worries many veterans in the industry is the current growth cycle in sales is now in its sixth year. In the past, "up" cycles for auto sales have rarely lasted this long before they've slowed down.

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"Nothing is typical with this cycle. We're all holding our breath wondering how far this can go," said Krebs. She pointed out that the possibility of higher interest rates later this year and an impending surge of used cars that will hit the market once they reach three or four years in age could both slow down new car sales.

In addition, rising prices could make it tougher for many on the lower end of the market to afford a new car, truck or SUV.

"At some point, we'll need to see wages go up," said Krebs.

Paddor knows nothing lasts forever, but he's not wasting an opportunity to expand his dealership. He's added a supplemental building to handle the increase in business.

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"It's just a frenzy right now. Low gas prices are a huge factor. People have extra money and they're putting that into new cars and SUVs," he said.