Discuss as:

Auto industry proving to be the little engine that could

John Sommers II / Reuters

Newly assembled 2013 Ford Escapes sit on plant lots ready to be shipped out to dealers at the newly transformed Louisville Assembly Plant in Louisville, Kentucky.

The subject will be politics but the economy will be one of the dominant factors playing out as Democrats begin their convention today.  And with a desperate need to put a positive spin on what is, at best, a struggling economy expect to see the spotlight focus on the auto industry.

At a time when housing starts are sputtering and there are few other solid signs of a recovering economy the U.S. auto industry has become the little engine that could. 

Once all the makers weigh in with their August numbers by day’s end sales for the month will likely show about a 16 percent year-over-year gain. And while the market, at best, is expected to total 14.5 million this year, well off from its 17-million peak, “There’s not much else we can point to these days that’s anywhere near as buoyant,” said analyst Joe Phillippi, of AutoTrends Consulting.

Analysts point to a variety of factors that helped drive strong demand last month – from soaring fuel prices to hurricanes and heat waves.  High on the list is pent-up demand, but the increasingly availability of credit, especially for sub-prime buyers also played a clear role.  And one area of strong demand – a surge in pickup truck sales – holds out hope that builders and contractors are looking beyond recent problems to prepare for better business in the months ahead.

Among the makers leading the August charge, Volkswagen was up a solid 62.5 percent year-over-year, much of that surge driven by demand for its American-made Passat model.  Reflecting the latest rise in fuel prices, meanwhile, more than a quarter of those vehicles were sold with gas-stingy diesel engines, with VW’s sales chief Frank Trivieri forecasting that could soon rise above 30 percent.

Auto sales rise as higher gas prices, aging vehicles spur growth

Asked what is driving the automotive upturn – and countering some forecasts that the market would begin cooling down by late Summer – Trivieri pointed to “pent-up demand.  There are still customers who say it’s time to trade in now rather than continue to pay for repairs.”

Since the collapse of the U.S. market – generally seen to have begun in 2008, sales bottoming out at 10.4 million in 2009 – American motorists have purchased perhaps 10 million vehicles less than they would have had the industry stayed close to its normal trendline. 

Nowhere does pent-up demand seem to be more apparent than among the Big Three Japanese makers, and especially Toyota and Honda.  The latter is reporting a 59.5% jump; the bigger of the two saw a 45.6 percent gain in August and most analysts believe a sizable chunk of both makers’ gains came from buyers who postponed trading in last year as the result of Japanese product shortages caused by that country’s March 2011 earthquake and tsunami.

One factor clearly helping potential buyers is the growing availability of credit.  Most makers now offer leasing again – albeit at a higher price – after the lease market all but dried up in 2009 and 2010.

Meanwhile, subprime lending is on the rise again after also largely vanishing during the recession.  In fact, a new study by Experian Automotive found that during the second quarter, nonprime, subprime and deep subprime lending rose and even exceeded pre-recession levels, accounting for 25.4 percent of all vehicle loans for the quarter – a trend believed to continue into the third quarter.

“Because the overall lending environment has improved, lenders are making loans available to a wider range of customers. This is good for manufacturers and dealers, as it allows them to sell more vehicles,” said Melinda Zabritski, director of automotive credit for Experian Automotive. “However, the lower loan-to-value ratios show that lenders are not willing to throw caution to the winds.”

One of the more significant factors from August was the fourth consecutive monthly decline in incentive spending which dipped to an average $2,457 per vehicle compared to $2,614 in August 2011.  Hyundai had the lowest givebacks in the industry, at just $1,071 – down nearly 17% year-over-year. The maker has also been struggling to meet growing demand, especially following weeks of targeted strikes at its factories in Korea.

Hyundai reported record sales for August. According to TruCar.com, Hyundai -- and its sibling Kia -- had the highest average transactipn price in its history.

But other makers, including Ford, also warn they are struggling to meet market expectations after the sharp capacity cuts of recent years.

All three of the Detroit makers made gains in August, GM showing a payoff from the “Chevy Confidence” marketing program that has allowed buyers unhappy with one of the brand’s products to return it for a full refund.

Collectively, the domestic makers sold more than 121,000 full-size pickups last month, led by Ford – whose F-Series line has been the best-selling motor vehicle in the U.S. for three decades – at 58,201.

That’s a potentially very good sign for the broader economy, according to analyst Phillippi, who noted that the so-called “personal use” truck market has largely vanished, so those who buy the vehicles now typically need them for work.  And for demand to be so strong “despite near-record fuel prices…might bode well for the construction industry.”

Clearly, another factor working in the automotive industry’s favor is the glut of new product that has been and will continue coming to market of late.  That’s especially apparent in higher-mileage passenger car segments.  For 2013 alone Honda, Ford, Chevrolet and Nissan are all launching new midsize sedans.

Chrysler’s new Dodge Dart has been rapidly gaining ground in the compact segment, meanwhile, posting 300% monthly increases since its spring launch.  Company officials admit they can’t keep up that pace long but believe the Dart will continue the maker’s string of monthly sales gains that have handily outpaced the industry average.

That’s also allowed the maker to begin paring back its incentives – long the highest in the industry. “As we continue to refresh our product portfolio, you’ll see that number (continue to) shrink,” Chrysler CEO Sergio Marchionne said.

Expect to see the Democrats highlight the Chrysler turnaround this week.  The maker paid back all the loans it received during the Obama Administration as part of its bankruptcy bailout several years early.  Making a case for the White House handling of GM may be a bit tougher considering it needs to nearly double the maker’s stock price to recover that portion of the 2008 – 2009 auto bailout.  But strong sales by the Detroit giant – which last year regained its place as world’s best-selling automaker – should help create at least a somewhat positive spin.


More money and business news:

Follow NBCNews.com business on Twitter and Facebook