Pent Up Demand Could Erupt As Consumer Expectations Improve
But J.D.Power Nervous About Possible Setback
The recovery in the U.S. light vehicle market has been stuttering and threatening to stall of late, but some experts believe that strong growth will soon return, although nobody is protecting a return to the glory days, yet.
Morgan Stanley analyst Ravi Shanker believes U.S. demand has been pent up and is about to explode again.
“We still see a V-shaped recovery, as the long-term drivers of (demand) remain strong. The U.S. car parc is the oldest it has ever been. The average car on the road is over 10 years old with 120,000 to 150,000 miles on the clock and is likely to need replacement soon. Sales have been running below a long term replacement trend levels for 25 months, which we view as unsustainable,” Shanker said.
Consumer expectations, not unemployment or home prices, are better pointers to car sales trends.
“We believe the significance of the unemployment rate and home prices as a driver of new car sales is overblown. We attach more importance to consumer expectations, which has been volatile, but is up significantly year on year,” Shanker said.
Shanker predicts U.S, sales of 11.5 million in 2010, 14 million in 2011 and 15 million in 2012. He also believes that future sales will demonstrate improved mix, with current sales about $2,200 above trend.
“We note that even at 11.5 million, the value of sales in 2010 is about equal to 12.3-12.5 million at normalized prices,” he said.
Meanwhile J.D.Power has raised its forecast in a report for 2010 to 11.8 million from 11.4 million forecast the previous month, and compared with actual sales of 9.2 million in 2009. For 2011, J.D.Power now sees sales of 13.2 million.
Deutsche Bank expects sales of 11.4 million in 2010, 12.5 million in 2011, and 13.5 million in 2012, the latter is 1-1/2 million less than Morgan Stanley’s ebullient forecast.
But J.D.Power is a little nervous that it might be knocked sideways by unexpected bad news.
“Given the volatility in both the economy and consumer demand, there remains a moderate level of risk of a weaker selling rate in 2011,” J.D.Power said in the report.
Neil Winton – September 29, 2010