As Goes the Stock Market, So Goes the U.S. Auto Industry

April 4, 2012
One analyst sees a strong correlation between the rise and fall of the Dow Jones Industrial Average and the fortunes of the U.S. auto industry.

The Dow Jones Industrial Average is up nearly 6% year-to-date, and up nearly 22% since October. Meanwhile, monthly U.S. light-vehicle sales have been surging to levels not seen since prior to the recession.


Not at all, asserts Jesse Toprak, vice president of industry trends and insights for

"The biggest contributor, we think, to the overall recovery in the [auto] industry has been the gains in the stock market," said Toprak. "That typically has the highest correlation to new-vehicle sales over time."

That's especially been true since January 2007, Toprak adds.

"Since January 2007, there's about a 77% correlation between the Dow Jones Industrial [Average] and new-vehicle sales," he explains. "To put it in perspective, we would call 50% a 'strong' correlation. At nearly 80%, it's an extremely strong correlation."

Toprak sees the rise and fall of the stock market as "a red-light/green-light indicator" for prospective car buyers, even if they're not heavily invested in the market.

"When you turn a TV on, that's the first thing you hear: 'The Dow Jones is up, the Dow Jones is down,'" Toprak says, adding that the fluctuations of the market "almost gives you an indication of whether it's OK to buy a big-ticket item or not."

Given that U.S. stocks have been on a bullish run in recent month, Toprak probably wasn't shocked by the March sales data.

Driven by sales of small and midsize cars, March light-vehicle deliveries in the United States finished at 1.4 million units, translating to a seasonally adjusted annual rate of 14.4 million units, according to

The sales rate was the second-highest for any month since April 2008, according to

In addition to the stock market's solid gains, Toprak sees the auto industry's product offering as a contributor to its resurgence.

"Customers have more to choose from," he says. "And the lineup of cars and trucks and SUVs at the U.S. dealerships today is the best they've ever had, really."

In a conference call on Tuesday, senior analyst Jessica Caldwell pointed to several other factors that have her feeling optimistic about the U.S. auto industry going forward.

So far this year, the average age of trade-in vehicles is six years old, Caldwell noted, and about 50% of new-vehicle purchases have included trade-ins.

Combined with easy auto financing -- which has been seen in lower average credit scores for car buyers -- Caldwell believes that "all of this really points to pent-up demand."

"The market is opening up," Caldwell says. "You have people out there purchasing cars who haven't been purchasing because they've been either denied credit in the past or they were in a bad financial situation.

"When you combine those buyers with the people who weren't really affected by the recession, the people buying cars because they like all the new technology, the new safety features, the new products out there ... I think altogether you have a strong market."

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