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U.S. Sales Strong But Long-range Forecasts Remain Benign

U.S. Sales Strong But Long-range Forecasts Remain Benign.

“We expect sales to decline about 1.2 per cent in 2019 and 2020, but stabilise at a relatively healthy annual rate of 16.6 million-16.8 million”

U.S. car sales have been surprisingly strong so far this year, but forecasters are now turning to the remainder of the decade, and the question now is just how far will sales fall.

Not by much it seems, as some catastrophic forecasts have now been withdrawn.

In June sales rose 5.4 per cent to the equivalent of an annual rate of 17.4 million, boosted by SUVs and tax cuts, and so far this year has recorded an unexpected gain of 1.9 per cent

At the start of the year the consensus was for a modest decline of 1 or 2 per cent to between 16.8 and 16.9 million.

Standard & Poors raised its forecast for the year to 17 million from its previous 16.9 million, and said over the next couple of years sales will fall just over 1 per cent a year, although it worries about the impact of ongoing trade wars.

“We expect sales to decline about 1.2 per cent in 2019 and 2020, but stabilise at a relatively healthy annual rate of 16.6 million-16.8 million units,” said S&P Global Ratings credit analyst Nishit Madlani.

“We based our forecast on our expectation for steady U.S. GDP growth, housing starts, gasoline prices, and, to a lesser extent, some increase in demand due to the fairly high average age of light vehicles on the road – more than 11.5 years – and U.S. tax reform,” Madlani said.

Sliding used car prices
Sales will also be hit through 2020 from falling availability of auto loans, sliding used car prices, rising interest rates and less favourable leasing terms.

IHS Markit held its forecast for the year at 16.9 million, as a healthy economy persuades consumers to keep spending.

BMI Research sees a 2.4 per cent decline in 2018 to 16.8 million, although it says “the financial condition of the market is becoming more questionable”.

Morgan Stanley has changed its mind about imminent disaster. Late last year it was forecasting 2018 sales would fall 5 per cent to 16.5 million, and that things would be so bad the government might have to intervene to stop sales falling below 15 million by 2019/2020. This was based on the notion that quickening and affordable technology gains for improved connectivity, safety and electrification would make current vehicles look unattractive and dated and knock the bottom out of the second hand car market.

More restrained
Its latest projections are more restrained, as it points out that the market is more than 9 years into the auto cycle.

“We recently raised our estimates to 16.8 million in 2018, 16.1 million in 2019, and 16.0 million in 2020, and our economist is not forecasting a recession through 2019. However, we remain concerned with the long-term sustainability of auto credit availability, and the risk of used vehicle obsolescence during a time of unprecedented technological change,” Morgan Stanley said in a report.


 

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