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Heavy sales sparking optimism for auto sector

July 14, 2014

There wasn't much optimism coursing through the auto industry after a cruel winter with limited sales, but positivity is starting to flow after American consumers made June one of the best months for car purchases in years.

According to Autodata Corp., the 1.4 million vehicles sold last month made June the busiest month for sales since July 2006. Car manufacturers are now on pace to sell more than 16 million vehicles by the end of the year. If that forecast holds true, car sales will surpass the 16-million milestone for the first time since before the Great Recession.

Many young adults are leasing luxury brands instead of buying.

One sector that continues to make hay in 2014 is the luxury auto marketplace. Time reported that Rolls-Royce sales have risen 33 percent in 2014, and the entire luxury automotive industry is up 11 percent through the first half of the year.

Audi and BMW—two sought-after luxury German brands—are also showing big sales numbers. Audi sales in the U.S. climbed 23 percent in June, and Time reported that younger buyers attracted to the brand are helping fuel the growth.

But many of the purchases made by the young demographic are for the A3, the brand's most affordable automobile with a starting sticker price of just under $30,000. Audi executives told Edmunds that the typical A3 buyer is a first-time Audi owner who is used to driving non-luxury brands like Toyota, Honda or Ford.

Mercedes is also trying to target this demographic with its new CLA model, which is similarly priced near the A3.

Time reported that this means that the current crop of luxury buyers are different than past generations. They're younger and less wealthy, and often spend less than their grandparents to buy an Audi, BMW or Mercedes.

To lease or buy?

What's more is that these type of consumers are actually doing less buying, meaning they are more likely to lease than past generations.

The Wall Street Journal reported that 28 percent of all new car purchases—and nearly half of all luxury purchases—are leases. This means that many luxury buyers are caught somewhere in the middle:  They feel good enough about their finances to justify a new luxury car, but they don't have enough confidence to make an outright purchase.

Lower monthly payments are a key factor to the appeal of leasing, but owners should understand that if they find themselves in a pinch, they don't own the car, and thus can't sell it if they need additional cash. Buyers and leasers should also remember that nabbing a new car costs more than just the sticker price or monthly installment to the dealer. Car owners will also need to buy auto insurance and pay for any taxes or registration fees at the time of the purchase.

But in some instances, leasing can be a great option. For drivers who are planning to buy a new car every couple of years, leasing might be a better idea because they will avoid the risk that their car purchase will be worth less than the outstanding loan amount when they go to sell.