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Big Slide In U.S. Car Sales Predicted By Morgan Stanley

Big Slide In U.S. Car Sales Predicted By Morgan Stanley.

But Other Experts At Least Cling To Positive Short Term Targets.

“A stretched consumer, falling used prices, and technological obsolescence of current cars are ingredients for an unprecedented buyer’s strike”

U.S. car sales are about to dive by between 1 million to 4 million annually over the next 3 years, with buyers blitzed by fears of a credit crunch, falling second hand prices, worries about early obsolescence, and the downward spiral can only be saved by another government “cash for clunkers” subsidies.

That’s the view of investment bank Morgan Stanley, although it’s not shared by everybody; yet anyway.

Barclays Equity Research, in a report on the U.S. market’s latest sales data noted that May sales were the third straight month of below 17.0 million annual selling rate, and said –

  • Downside risk to 2017 sales forecasts have intensified
  • Incentive spending continues to erode but discipline is holding up
  • Stocks remain high, but not scarily so 

But Barclays refrained from extrapolating the data into a disaster scenario.

Investment research Evercore ISI was also unruffled enough to say a modest increase is required this year if its forecast of flat U.S. car sales is to be met. It pointed to uncertainty in the market, but didn’t sound over-excited.

IHS Markit retained its forecast of 17.3 million for 2017.

In 2016, sales hit a record 17.5 million.

Data cruncher Experian acknowledged rumours of what it called a “sub-prime auto loan bubble”, and had this to say in a report.

“A level-headed look at the data shows otherwise.”

Not according to Morgan Stanley though.

A couple of months ago it warned that imminent root and branch technology changes, coupled with auto loan problems, might threaten a sudden slowdown in sales, threatening profits. He didn’t give any hint of the scale of the change on the cards. He’s now put some meat on the bones.

Up to 4 million a year
Morgan Stanley analyst Adam Jonas said he’s removing between 1 and 4 million a year from his U.S. sales forecast.

“A stretched consumer, falling used prices, and technological obsolescence of current cars are ingredients for an unprecedented buyer’s strike,” Jonas said.

Jonas’s 2017 forecast looks relatively benign at 17.3 million, down from a previous stab of 18.3 million. After that it’s all downhill.

“Our 2018 forecast is cut to 16.4 million from 18.9 million, implying a further 7 per cent decline from 2017 to 2018. Our 2019 and 2020 forecasts are cut to 15 million in both years from 19.2 and 18.7 million,” Jonas said.

The pace of sales in 2019 and 2020 was last seen in 2013. Even that will be hard to attain without government help.

“In our view, to maintain 15 million and no worse we may need to see government support for new car purchase in the form of an incentive programme similar to cash for clunkers,” Jonas said.

That might not be too appealing to President Donald Trump.

“Cash for clunkers” was a $3-billion programme in 2009 that bailed out the US auto industry stricken by the financial crisis. Consumers had a cash incentive to get rid of older, gas-guzzling vehicle and buy or lease new, more fuel-efficient cars. Sales had dived to an annual rate of about 10 million.

Pull forward
Jonas said recent strength in the market had depended on car makers’ using imaginative schemes to pull forward demand.

“8 years into the biggest auto cycle on record, we appear to be hitting a point of diminishing returns where the tactics required to attract the incremental consumer may be putting even more pressure on the second hand market, leading to adverse conditions for selling new vehicles,” Jonas said.

Jonas believes that the current pace of technological and regulatory change means cars designed to last for up to 20 years might well be made obsolete much sooner.


 

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