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Could 2017 Be Another Record Year In U.S.?

Could 2017 Be Another Record Year In U.S.?

“Investors may not like the methods, but we would be surprised to see 2017 U.S. auto sales below 18-handle for the year”

2017 was supposed to be the year when the long run up in U.S. car sales would finally exhaust itself, but it could be another year of record auto sales.

According to investment bank Morgan Stanley, sales could rise another 2 to 4% in 2017. Germany’s Center for Automotive Research (CAR) puts the increase at 2% to a new record 17.9 million, although British-based BMI Research expects a small fall of 1.8%. Some positive forecasts cite the Trump factor while the negative projection reckons an overheating used car market will provide too many cheap alternatives to buying a new car, and worries about growing debt.

Morgan Stanley described the 2016 as “plateauing” but though next year would sees some surprises “shaped by cyclical extension and idiosyncratic factors”.

“While there are many tell-tale signs that U.S. auto credit is in extra innings, we would not underestimate the creativity of the captive consumer finance companies and the many levers available to keep monthly payments within an affordable corridor at a time when average vehicle age remains over 11 years. Investors may not like the methods, but we would be surprised to see 2017 U.S. auto sales below 18-handle for the year,” said Morgan Stanley analyst Adam Jonas.

No Trump factor for Jonas though.

CAR says it is all about Trump.

CAR said Trump’s promise of economic stimulus programs and tax cuts will boost sales by 350,000 or 2% to reach an all time high. CAR also points to cheap gas, and possible dilution of fuel consumption goals and climate change regulations as aiding the industry.

Natural plateau

BMI Research raised its earlier projection of a 1% decline to 1.8% as growing used-car stocks adds pressure to a market already reaching a natural plateau. Rising stocks of used cars isn’t so much of a problem for SUVs, which are being held for longer than sedans, and this sector should increase 1% in 2017. BMI also worries about debt.

“Consumers have been taking on increased amounts of credit thanks to low interest rates and longer loan terms, which has enabled many people to buy a new vehicle who might not have been able to afford it before. While the more affordable payments have meant this was not a problem for some time, the level of loan delinquencies, particularly for the sub-prime segment, has been increasing,” BMW said.

Among new developments taking shape in 2017, Morgan Stanley sees pressure mounting to replace older vehicles without the latest safety systems as the death rate from car crashes increases. It looks for a possible government incentive scheme like the “cash for clunkers” scheme.

Morgan Stanley doesn’t think any watering down of the fuel economy rules will stop the increasing investment in pure electric vehicles and away from internal combustion engines (ICE).  It see gasoline electric hybrids as a stepping zone to electrification rather than a competitor for pure electric.

But Morgan Stanley does give a hint to the Trump factor in its outlook for 2017.

“A re-examination of key U.S. economic inputs has forced investors to reconsider their (underweight) exposure to U.S. autos. Deregulation, lower taxes and improved consumer confidence and recovery in financial institutions ….. could this auto cycle continue longer than anyone thought,” says Jonas. 

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