Are 16 Million U.S. Sales Coming Faster Than We Think?

Taking into account the looming fiscal cliff, tanking EU, China’s slowdown and the end of the world per popular historical sources and famous prognosticators of the past, there is a good chance the automotive world is underestimating how fast the U.S. market will return to the days when 16 million-plus in annual light-vehicle sales was the norm.

After averaging between 16- and 17-million annually in the decade leading up to the start of one of the worst recessions ever in 2008, sales nosedived to 10.4 million in 2009. Demand has been coming back but is still far from the 16 million bar. They should end this year at 14.4 million, possibly higher depending on what kind of retail enticements pop up in December. 

But, aforementioned catastrophes aside, there are reasons to think the market can rebound faster.

A simple trend analysis for one says so.

Presuming continued economic growth, first-quarter 2013 should improve on the near 15 million annual rate we expect for the final three months of this year. The annual rate should continue trending up throughout the rest of 2013 suggesting a final total well north of 15.0 million.

If sales push to even 15.3 or 15.4 million next year, and GDP growth improves, a case for 16 million in 2014 can be made.

However, and in some people’s view maybe a little closer to earth, there are other reasons besides a sky-high view to believe we are shortchanging the next two years.

Affordable money is one.

As cited in a recent WardsAuto article, “’Capacity’ North American Auto Industry’s Latest Battle Cry”, part of our 2013 Automotive Outlook series, most forecasters underestimated 2012 at the start of the year by up to one million units in part by not putting enough weight on the ability of low interest rates to bring more buyers (and leasers) to market. Interest rates are still at long-time lows.

Another is improving economic indicators, such as home sales and construction, that have a strong correlation to auto sales, and fuel prices appear to have stabilized.

Third, we attribute some of the stronger sales this year to enthusiasm created by the load of new products that hit market in the last 12 months. There is still a rash of new products coming between now and the end of next year

Another is Hurricane Sandy, itself. There will be incremental sales created due to damaged vehicles having to be replaced, and there  is speculation that fallout from the storm could cause trade-in values on used vehicles to rise in the eastern U.S. luring more people into the new-vehicle market.

Also, auto makers are on the back end of the curve in ramping up production capacity, and worries that suppliers can’t keep pace are starting to ease.

Additionally, the temptation to “force” volume through the pipeline from factory to consumer will be stronger - a key subject worth its own story.

One reason the temptation is strengthening is pressure to get, or at least maintain, market share, which largely speaks for itself.

Another is related to manufacturing.

After production plummeted to its lowest level in decades in 2009, manufacturers are reveling in stronger output. Although mostly warranted, there have been a lot of commitments to increasing capacity through hiring, the addition of assembly shifts and the cajoling of suppliers to go along with investing in expanding their own production capabilities. Faced with a decision to cancel a much-ballyhooed third shift because sales of a car or truck fell short of expectations, an OEM might choose to keep the metal moving with a retail solution.

So, perhaps the positives will outweigh the negatives.

Of course, all that said, a future blog will explain why once we get there 16 million might be the best we’ll ever see.

Stayed tuned.