CLEVELAND — The rising demand for used vehicles and loosening of financing will soon translate into increased demand for new-vehicle sales, according to the latest report from KeyBanc.

Driving this expected ramp up of demand are improving retail auto financing and auto asset-backed securities issuance, along with growing used-vehicle sale volumes and prices, officials indicated.

"Dealers have been reporting that retail financing trends have been improving, which is corroborated by CNW Research data showing approval rates for automotive loans are improving at all levels (prime, near-prime and subprime)," the report found.

For instance, KeyBanc pointed to GMAC, which has increased the credit spectrum for auto loan approvals recently.

Moreover, the company said that the Federal Reserve's Term Asset-Backed Securities Loan Facility, or TALF, is positive news because "it should provide additional capital for retail automotive loans by ‘unfreezing' the automotive asset-backed securities market."

"Specifically, automotive ABS issuance increased to $5.4 billion and $1.7 billion in March and April, respectively, which is a material increase over the anemic $1 billion average monthly issuance since October 2008," executives wrote in the report.

When TALF launched in March, three companies issued $5.4 billion, including Ford Credit, Nissan Credit and Huntington Bank. Moreover, during the second round, two companies issued $1.7 billion, including World Omni and CarMax. While KeyBanc said this issuance is below the average monthly issuance, it does represent "a material increase."

"Barring any material exogenous shock to the U.S. new- and used-vehicle market, improving retail automotive financing and automotive asset-backed securities issuance trends should ultimately result in an increase in new-vehicle sales," officials continued.

Basically, while many in the industry may believe there are two types of shoppers, new and used, KeyBanc explained that consumers tend to consider both new and used units prior to purchasing.

"A recovery in overall vehicle demand is typically first evidenced by an increase in used-vehicle sales and prices," the company highlighted.

Moreover, KeyBanc stated, "Based on our retail automotive experience, we believe a significant portion of the recent decline in new-vehicle sales can be explained by consumers' inability to buy due to tougher consumer credit."

Continuing on, officials indicated, "Used-vehicle sales typically increase before new-vehicle sales increase because returning buyers continued to be swayed toward used vehicles because of their desire to save money as well as the exaggerated price disparity between new and used vehicles. For example, we estimate the U.S. Used Vehicle SAAR bottomed at 32 million vehicles in October 2008 then remained in the 33 million to 34 million vehicle range from November 2008 to January 2009.

"However, in February and March, the U.S. Used Vehicle SAAR showed a notable improvement, rebounding to 39 million vehicles, respectively, (roughly a 10-percent increase)," the company highlighted.

A recovery in demand also helps used-vehicle prices because it drives up the value of trade-ins, executives pointed out. Based on the Manheim Used Vehicle Value Index, an average trade-in valued at $20,000 in December 2008 was worth an additional $1,600 in March.

"Ultimately, the increase in used-vehicle prices, combined with an increase in overall vehicle demand causes many vehicle buyers to switch back to new vehicles, resulting in an increase of new-vehicle sales," according to KeyBanc officials.

Based on all its data and experience, KeyBanc is predicting resurgence in new-vehicle sales to take place in the next several months, as long as the market doesn't experience an unexpected shock.