U.S. auto sales are tumbling further and further away from record highs hit just a few years ago.
Automakers are projected to sell 16.8 million passenger vehicles in 2019, a 1.1 percent decline from this year and below 17 million for the the first time since 2014, according to the National Automobile Dealers Association’s annual sales forecast released Thursday. U.S. sales eclipsed 17 million in 2015 for the first time since the recession, peaking at 17.6 million vehicles sold in 2016. They’ve been falling ever since.
For 2018, car dealers are expected to sell 17 million vehicles, a better year than the industry had anticipated, said Patrick Manzi, senior economist for the trade group.
“This was unexpected,” he said. “We were expecting sales to fall off a little more than they have this year, but then the new tax law was passed which put more money in the pockets of consumers and they certainly purchased new vehicles at dealer showrooms.”
Car buyers mostly purchased light trucks, cross-over vehicles, pickups and SUVs, he said.
But with rising interest rates, dealers are growing concerned about “price creeping” that could keep some buyers out of the market, said NADA Chairman Wes Lutz, who is also president of Extreme Dodge-Chrysler-Jeep-Ram in Jackson, Michigan.
Falling incentives and rising rates could put “tremendous” pressure on consumers’ monthly payments, he said, adding that interest rates remain a “wildcard.”
“Depending on what source you look at, average interest rates on new-vehicle financing have risen 60 to 70 basis points from 2017 through the third quarter of 2018,” Manzi said. “That has really driven up the cost of borrowing,” he said. “We expect interest rates to continue to rise. There has been some speculation that the frequency of rate increases may slow.”
The shift from passenger cars to crossovers and truck-based vehicles has been staggering for the industry. Automakers have been scrambling to realign portfolios around the shift. Earlier this year, Ford said it will essentially stop selling traditional passenger cars in the U.S. altogether, except for its Mustang sports car.
General Motors said in November it plans to slash production at several U.S. factories that focus on making passenger cars, such as the Chevrolet Cruze mid-size sedan. The decision has labor leaders and lawmakers in Ohio, Michigan, and Maryland up in arms.
Light trucks are on track to account about 70 percent of all sales, with cars dropping to 30 percent, NADA said. A decade ago, car sales represented 52 percent versus light trucks, including SUVs, at 48 percent.
Those vehicles tend to be more profitable than sedans and passenger cars, in part because they simply cost more. Customers are willing to spend a bit more on an SUV, crossover or pickup because they feel they are getting more for their dollar in terms of space and flexibility. While these vehicles are becoming more efficient, rising gas prices have been cited by some industry analysts as a potential catalyst for at least a partial swing back into sleeker, more efficient vehicles.
But gas prices are not expected to shoot through the roof anytime soon.
“We also expect gasoline prices to remain relatively low in 2019, not as low as present but still low enough not to cause a panic and a consumer shift back to the car market,” Manzi said.
Source : CNBC
