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U.S. Car Sales Stumble But Outlook Remains Sound

U.S. Car Sales Stumble But Outlook Remains Sound.

“We do not see a downturn as imminent and still expect U.S. auto sales to grow this year by one per cent and the market to be flat in 2017”

Sales in the U.S. are faltering, but experts reckon this is only to be expected after recent strength and underlying conditions remain healthy.

In August, the annual sales rate of 16.9 million represented a sharp deceleration even after heavy discounting and suggesting recent powerful growth was losing momentum.

The message from Stephanie Brinley, analyst with IHS Markit, was don’t panic.

“While August volume results may be disappointing for several automakers, the fundamentals for a healthy industry remain. After several years of strong gains, growth is stabilising. What is important to read out of August results is that the industry is largely disciplined on incentives and production. Though incentives will play a more significant role for some specific models and segments as is typically true, average transactions prices are also reported to be coming up, reducing the net impact of incentives increases,” Brinley said.

A report from Kelley Blue Book said new-car average transaction prices for light vehicles in August was $34,143, a 2.6 per cent increase over the same month last year

Investment researcher Evercore ISI also reckoned the U.S. market was in good health despite the recent weakness.

“We do not see a downturn as imminent and still expect U.S. auto sales to grow this year by one per cent and the market to be flat in 2017. The broader U.S. economy and secular trends suggest to us that the probability of a substantial drop in the market is low,” said Evercore ISI analyst George Galliers.

Another IHS Markit analyst Tom Libby pointed out that a slight decline in 2016 would be normal, historically.

Unusual streak
“According to historical data from Automotive News, since 1920 the industry has experienced only two six-year long year-over-year sales increases, one from 2010 through 2015 and the other from 1921 through 1926. There has never been a streak longer than six years dating back to 1920, so it would actually be unusual if the industry were to rise this year as well, creating the first seven-year streak in almost 100 years,” Libby said.

IHS Markit’s Brinley said some monthly volatility was expected.

“The market is largely healthy and a levelling off of sales growth expected and not alarming,” Brinley said.

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