The three real reasons new car sales are booming

If you follow the news from the auto industry, you might wonder who spiked the punchbowl. Last month, automakers sold 1.5 million new vehicles, the highest rate in years, and most industry forecasters expect sales will soon return to the level they last touched before the 2008 recession of 16 million vehicles a year.

And yet the rest of the economy seems to be in a far less partying mood. The U.S. Census reported today that the average family's income has fallen about 8 percent since 2007 and showed no sign of growth last year. (Adjusted for inflation, today's average family earns as much as one did in 1989.) Since January 2009, fewer than 300,000 full-time jobs have been created and 9.5 million Americans have left the work force. And while automakers have launched more than 20 new models this year, only two — the Toyota Corolla and Chevy Silverado — rank among the top 10 sellers.

As the saying goes, "The money has to come from somewhere." Before the 2008 recession, the money came from housing; it wasn't a coincidence that Ditech.com was owned by General Motors' lending arm. In the case of the latest new car sales boom, the money has been flowing from three other sources.

Retirees

This group represents a new car dealership's dream of a customer. Why? Because most have lifetime fixed incomes, making them far easier to finance.

There are over 41 million retirees now receiving Social Security, with nearly two million added to their ranks over the past five years. This portion of our population has helped recently boost the average age of new car buyers from 46 in 2001, to 55 in 2011 with many models now reporting a year-by-year increase in buyer's age. This goes in lockstep with our graying population.

Cheap loans

That older customer can now finance a vehicle for as long as 10 years with interest rates that are often lower than two percent for customers with good credit and a stable income.

At no time in the past has the industry offered such low rates over a long period of ownership. It makes sense, though. Retirees, in particular, mostly have the added comfort of a stable income while those in the 55- to 64-age group now represent the most active buying crowd with 1 out of every 16.4 drivers opting for a new vehicle purchase.

The longer-term loans also have a dramatic impact on what new car customers are actually buying at the dealerships.