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What the Dow Says About Car Sales

DETROIT ( TheStreet) -- When it comes to boosting August vehicle sales, Cash for Clunkers gets much of the credit, but the rise in the Dow Jones Industrial Average also played a role.

Continuing research by Jesse Toprak, vice president of industry trends for TrueCar.com, shows that stock market performance is a major factor in determining whether consumers buy cars. Since January 2007, the two metrics have closely correlated more than 85% of the time.

In other words, when the Dow rises or declines from the previous month, auto sales rise or decline proportionally, in relation to the previous month's sales. The correlation reflects not just the direction of the changes, but also the quantity of the changes.

Through Tuesday, the Dow was up about 4%, and vehicle sales are surging, estimated to total more than a million. When the manufacturers report sales on Monday, it should be possible to extrapolate just how much of a role Cash for Clunkers played. Sales were rising even before Cash for Clunkers sales began in late July.

For obvious reasons, "the stock market has a huge impact on new vehicle sales," Toprak says. "Even if you don't have money in the market, the first thing you hear in the news is what happens in the Dow Jones index, and if you see a gleam there, it says things are good."

Toprak says the correlation has been particularly high since January 2007. Over the past decade, the correlation has been about 50% to 60%, he says.

-- Written by Ted Reed in Charlotte, N.C..

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