U.S. Car Sales Will Slip A Bit In 2018.
But Things Could Get Grim After That.
As we await confirmation U.S. car sales slid a bit this year, a consensus of investment bankers, academics and researchers goes for a sharper but not catastrophic decline in 2018.
Not many dare extrapolate beyond 2018, but Morgan Stanley has peered into 2019/2020 and doesn’t like what it sees, with a technology- obsolescence inspired downturn so awful government subsidies may be needed.
Meanwhile forecasts for 2018’s decline range from down 1.5% to 5%.
BMI Research reckons sales in 2018 will slip 1.5% after a 1.1% fall this year.
“A positive note for 2018 is our Consumer team’s view that despite rising inflation and poor income growth, non-essential spending will grow at a faster pace than spending on essentials over our forecast period. But industry specific factors, such as growing second-hand inventories and a winding down of pent-up demand, will keep growth negative for at least the next two years,” BMI Research said.
The Center for Automotive Research (CAR) at the University of Duisberg-Essen in Germany is marginally less optimistic, going for a 2% fall in 2017 to 17.2 million cars and trucks and another fall of 1.5% in 2018.
“Despite slightly increasing economic growth of 2.5% in the USA, the U.S. car market will remain behind the sales of 2017 next year. In recent years, U.S. vehicle inventories have been significantly rejuvenated, driven by high discounts, cheap consumer loans and financing. In the saturated U.S. car market, fatigue symptoms are noticeable in the case of a rejuvenated vehicle fleet,” CAR’s Professor Ferdinand Dudenhoeffer said.
German investment bank Nord LB expects 2017 sales to fall 1.5% and accelerate next year for an up to 5% dive. Nord LB pointed out that the U.S. market has been exceptionally strong since the financial crisis of 2009 when sales were only 10.6 million.
Morgan Stanley is also at the bottom end of predictions, saying burgeoning auto credit will keep the fall next year to 5% and 16.5 million.
But its recently published forecast for beyond 2018 will freak out the impressionable, with its idea that quickening and affordable technology gains to improved connectivity, safety and electrification will make even current vehicles look unattractive and dated.
“We stand by our view that the nearly $2 trillion of car value on the road will face unprecedented risk, contributing to a consumer credit challenge that threatens affordability of both new and gently used cars. This may necessitate government or policy intervention by 2019/2020 – cash for clunkers? – to keep U.S. (sales) from falling below 15 million. Policy intervention remains our base case by the end of the decade,” said Morgan Stanley analyst Adam Jonas.
New things to watch for in 2018 include a possible reversal of the long-term trend of major manufacturers outsourcing work. More will bring things in house like Tesla Inc.
Make or buy?
“Our discussions reveal an important change in thinking, where many (manufacturers) are casting an all-new light on the traditional “make or buy” decisions. Tesla is widely seen as the most important agent of industry change in decades, and it is arguably the most vertically integrated player in the market. We see an merging risk to (big) suppliers who have built their forecasts on continued or even accelerating levels of (manufacturer) outsourcing. We believe that there is a real risk that the outsourcing trend could actually reverse,” Jonas said.