Bulls Fight Back Saying U.S. Car Market Not Facing Shakeout.
“This view is far too bearish. In fact it is economically illiterate”
Last month investment bank Morgan Stanley spooked investors, saying the bottom was about to fall out of the U.S. auto market.
But Bernstein Research analyst Max Warburton hit back saying talk of an imminent sharp dive in U.S. auto sales was economically illiterate and ignores evidence that a shakeout normally requires a recession and rising unemployment.
The idea that consumer lending is in crisis was also wrong, and worries that long-term threats to car sales because the young are eschewing driving in favour of Uber-like car hiring and sharing ignores the fact most sales come from older people.
Morgan Stanley had said U.S. car sales were about to dive by between 1 million to 4 million annually over the next 3 years, with buyers fearing a credit crunch, falling second hand prices, and worries about early obsolescence. The downward spiral can only be saved by another government “cash for clunkers” subsidies.
Jonas’s forecast sales of 17.3 million for 2017, down from a previous estimate of 18.3 million.
“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.
Bernstein’s Warburton’s critique was harsh. He acknowledged that the market was slowing and was past its peak, lending conditions were tightening and second hand prices were falling.
“But (negative news) has somehow been extrapolated into a U.S. auto market crash, with some followers talking of a “sharp downturn” and slashing earnings estimates. This view is far too bearish. In fact it is economically illiterate,” Warburton said in a report.
“If we go back through history there are almost no examples of U.S. auto sales falling significantly while employment remains full. It takes substantial interest rate rises and/or a subsequent recession to kill demand. As long as the U.S. job market remains robust, U.S. car sales will remain at a high level,” Warburton said.
Warburton agreed there were some problems with auto lending, but reflected lenders tightening credit availability. Used car prices have stabilized. And demographics suggest healthy long term demand as the U.S. population increases, and more people get driving licenses and more miles are driven. Forget the idea of a driver’s strike.
“The media loves to obsess about young people not learning to drive and becoming addicted to Uber, (but) older people are continuing to drive longer and later than ever, and it’s old people who buy new cars, not the young,” he said.
Warburton agreed the U.S. market conditions were getting tougher, but at a gentle rate.
“Talk of a big U.S. volume slump is silly” he added.