January auto sales were a lot better than expected. Here’s why

February 3, 2015, 5:53 PM UTC
Ford Reports Drop In Quarterly Profits
COLMA, CA - OCTOBER 24: Brand new Ford trucks are displayed on the sales lot at Serramonte Ford on October 24, 2014 in Colma, California. Ford reported a 34 percent drop in third quarter earnings with net income of $835 million. (Photo by Justin Sullivan/Getty Images)
Photograph by Justin Sullivan — Getty Images

January is generally a pretty soft month for car sales. Winter doldrums and the end of holiday sales generally contribute to a month where dealer lots see a lot less activity than usual.

The January that just ended, though, bucked that trend. This was the best January in years for several manufacturers, with favorable credit conditions and continued pent-up demand helping out.

General Motors’ (GM) sales were up 18% year-over-year, contributing to the automaker’s best January in 7 years. Ford (F) had its best January since 2004, and Chrysler saw its best first month of the year since 2007.

For the big Japanese automakers, January sales topped expectations at Toyota (TM) and Nissan (NSANY), but they lagged at Honda (HMC).

Pent-up demand is one major factor in this strong month. As the economy has struggled over the past several years, a lot of car buyers put of their purchases, leading to historic lows in auto sales market. With the economy generally improving, more and more people are finally replacing cars they would have replaced a few years ago.

TrueCar (TRUE) president John Krafcik called the strong month “a continuation of the momentum we felt last month,” and of the generally strong trends that were seen all of last year.

Kurt McNeil, U.S. vice president of sales operations at GM, said in a statement that lower gas prices are also contributing to the continued robust market.
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“It’s unquestionably the case,” Krafcik said when asked about the correlation between lower gas prices and increased car sales. He also noted that lower gas prices can change the mix of cars sold, with more profitable trucks and SUVs moving when gas prices are lower. (Some analysts have said lower gas prices ultimately don’t change things too much.)

Another piece of the puzzle is the auto finance market, which continues to be very friendly for borrowers. Average car loan terms have reached a record high of 67.2 months, and interest rates are still relatively low at 4.5%. Shoppers are taking advantage of these conditions, and that means more cars are moving.

Even if rates change, the auto finance industry could keep offering low rates though, said Krafcik.

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