The pent-up demand that has helped fuel the U.S. market since its post-recession bounce-back is coming to an end, with new-vehicle sales expected to reach their current-cycle peak next year, the National Automobile Dealers Assn. says.
Speaking on a conference call with media today from Los Angeles, where the auto show is about to begin, NADA Chief Economist Steven Szakaly says light-vehicle sales will rise to 17.7 million in 2016, a 2.3% jump from the 17.3 million expected for 2015.
“I think we’re seeing the beginning of the end of what has been tremendous pent-up demand for light vehicles,” Szakaly says. “We’re finally seeing the end of that pent-up demand and that cycle is going to run its course here in 2016.”
NADA’s forecast for 2015, which is pegged at 17.8 million including medium- and heavy-duty trucks, has been hiked twice since the start of the year, when the dealer group predicted sales of 16.9 million light vehicles.
“The industry continues to grow,” Szakaly notes. “Light vehicles have done tremendously well.”
Strong economic tailwinds, rising employment and increased new-car demand from Millennials (those born from the early 1980s to 2000) are among factors driving the better-than-expected 2015 performance.
But Szakaly says 2016 will be the cycle’s zenith, with LV sales expected to fall to 17.2 million units in 2017, before settling into a range of 16.8 million-17.2 million in the years immediately following. He sees rising interest rates, longer loan cycles and improved vehicle quality among factors that will slow demand.
“We do expect sales to decline,” Szakaly says. “In the long run, we don’t think this market is sustainable. It will be a very good year here in 2016, then (the market) will come down not dramatically but gently.”
An additional factor that will lead to softer new-vehicle sales is the used-car market, where pent-up demand also is waning. Rising inventories, particularly in the slower-selling sectors such as compact and midsize cars, plus an expected high number of returning leased vehicles in 2016, is seen lowering used-vehicle prices and pulling some buyers out of the new-model market.
The supply of vehicles 8 years old or less is up 1.9% this year to about 17 million units, notes Jonathan Banks, vice president of valuation and analytics for J.D. Power’s Used Car Guide.
“That’s the first time we’ve seen an increase in used supply since pre-recession,” he says on the conference call. The pool will grow another 3.4% next year and a further 4.5% in 2017, Banks adds. Lease returns, which will rise 58% between 2014 and 2017, will provide much of that growth in used-vehicle inventory.
“The great thing about the increase in used supply (is)…there’s going to be a lot of great vehicles in the used market that will be in line with what consumers demand from a technology standpoint, a feature standpoint,” he says. “The pool of used vehicles should be attractive…from a price point.”
