U.S. Car Sales – Will They Slide Or Drop?
Looks Like The Negatives Have It.
“The fall will be partly driven by a “used-car time bomb”
The argument about the pace of the fall in U.S. car sales continues, with AlixPartners joining in with some negative thoughts.
Some experts say the U.S. car market will fall a bit in a wholly healthy way, but others say Armageddon is approaching which will become so bad, the government will have to intervene to keep casualties to a minimum.
Bernstein Research analyst Max Warburton said talk of an imminent debacle was economically illiterate and ignored evidence that a shakeout normally requires a recession and rising unemployment. He saw no evidence of an approaching recession or rising unemployment.
In the crisis corner Morgan Stanley 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 will only be saved by another government “cash for clunkers” subsidies.
Jonas forecast sales of 17.3 million for 2017, falling to 16.4 million in 2018 and dropping to 15 million in 2019 and 2020.
Detroit-based consultancy AlixPartners is much closer to Morgan Stanley than Bernstein, saying sales this year will fall to 16.9 million light vehicles, and diving on down to 15.2 million in 2019.
“The fall will be partly driven by a “used-car time bomb” of 500,000 more off-lease vehicle returns in 2017 vs 2016, on top of the 500,000 more in 2016 versus 2015,” AlixPartners said in a report.
AlixPartners also pointed to slack hybrid and battery electric car saless in the U.S. Hybrid car sales slowed to 2.1 per cent of the market so far in 2017 from 3.2 per cent in 2013, while plug-in and battery electric sales while increasing still represented only 1.0 per cent of the market.
The report said the weakening U.S. market had led to burgeoning discounting, and a threat to manufacturers’ finance arms.
“Underlying these forecasts is the report’s findings that for the last 11 months sales incentives in the U.S. have averaged more than 10 per cent of vehicle prices – a historical harbinger of downturns,” the report said.
The used car problem is likely to depress used-vehicle prices double the 13 per cent drop already seen since 2014, costing automakers’ captive finance companies up to $5 billion.
“This all will likely be a double-whammy to new vehicle sales, displacing sales to cheaper used cars while increasing lease payments on new vehicles as leases get written with anticipated higher residual rates and tighter credit standards,” the report said.