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U.S. Auto Sales Likely To Spurt Again, But Clouds Gather

U.S. Auto Sales Likely To Spurt Again, But Clouds Gather.

“U.S. auto sales will approach 18 million in 2016 after setting an all time-high in 2015”

The Detroit Auto Show basked in the glory of news 2015 set a new record for U.S. sales and the expert consensus is for a new high to be set in 2016.

But some forecasters get a bit nervous when faced with predictions any further out, not least because the global economy seems to be fighting off another recession, while U.S. consumers will be facing a year of uncertainty as the presidential election gathers momentum. And improved long-distance sales predictions point to ominous pressure on profits, suggesting a return to the bad old days in 2007 and 2008 when more cars sold meant bigger losses.

Meanwhile at the Detroit show, Lincoln reminded everyone that it is still a player at least in the U.S., when it showed the production-ready version of the new Continental. Luxury debutants dominated the headlines with the new Mercedes E class, Volvo S90, sports coupes like the Lexus LC 500 and Infiniti Q60, and the Audi A4 Allroad. Hyundai raised its presence in the premium end of the market too with its new Genesis luxury brand’s G90.

GM was especially proud of its new electric Chevrolet Bolt, which has a claimed range of 200-miles and will reach customers at about the same time as Tesla’s mass market Model 3. Chevrolet also unveiled its Ford Focus fighter, the new Cruze. VW tried to win some friends back by showing the new Tiguan GTE concept, a plug-in hybrid version of the upcoming all-new compact SUV.

All these new products will help drive the industry to new sales highs.

Great Recession
“U.S. auto sales will approach 18 million in 2016 after setting an all time-high in 2015,” Standard & Poors said in a report. S&P said sales rose nine per cent in 2015 to 17.2 million, just six years after being mired in the depths of the Great Recession, said S&P analyst Nishit Madlani.

Madlani cautioned though that some sections of the industry were already being hit by weakness in China and global economic fears.

“There are some pockets of oversupply in the large and luxury segments as certain luxury automakers are trying to counter their weakness in foreign markets such as China. The recent dramatic decline in the Chinese stock market, which was spurred by a disappointing manufacturing report, and geopolitical tensions in the Middle East, which tend to lead to increased gasoline prices, remain headline risks to our forecast,” Madlani said.

IHS Automotive ventured a forecast into 2017.

“IHS estimates there is still strong upside potential as a strengthening U.S. economy and stronger employment takes the U.S. market to 18 million units over the next two years or so,” IHS said in a report.

Although the market is increasing, the pace of growth slows and competition for sales will heat up, said IHS Automotive analyst Stephanie Brinley.

“The competitive environment is likely to stiffen considerably. The slow pace keeps the volume growth in 2016 notably lower, suggesting the right consumer for the product becomes only more critical in 2016. Sales of SUVs and premium-branded vehicles are expected to be hot segments in 2016, seeing growth ahead of the market but likely slower than in 2015 or 2014,” Brinley said.

Investment researcher Morningstar of Chicago has some cautionary thoughts about 2016.

“We expect continued strength into the first part of the 2016, but do remain conservative in our 2016 expectation of roughly flat year-over-year growth as a result of already high leasing penetration and a supply chain nearing full capacity utilization,” said Morningstar analyst David Whiston.

Evercore ISI, London-based investment researcher is definitely in with the bulls.

“We think there is strong evidence for another two to three years of positive economic tailwinds with our official economic team not calling for a recession until 2019,” Evercore ISI said.

Morgan Stanley said it remains cautious about the prospects for the U.S. as sales grow but profitability wanes.

“Specifically, we expect sales of 18.2 million in 2016, 18.9 million in 2017 and 19.5 million in 2018. (But) we expect North American profitability to expand in 2016, plateau in 2017 and fall thereafter,” Morgan Stanley said in report.

“How much further can U.S. sales run? Materially higher, but at a potentially significant cost. We have revised our outlook on U.S. (sales) to reflect the increased likelihood that auto sales could approach 20 million this cycle driven by the four C’s: credit, capacity, currency, and cash. The pull-forward of sales and profit can surprise positively versus 2016 expectations though it may contaminate the outlook beyond 2016,” Morgan Stanley said.

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