U.S. LV Sales Forecast Remains at 14.5 Million Despite May Slowdown

WardsAuto is sticking to a U.S. light-vehicle sales forecast of 14.5 million units for 2012, even though May’s results put a scare into the industry with its below-trend seasonally adjusted annual rate of 13.7 million LVs.

As long as the economy continues growing and, more specifically, as long as employment and consumer confidence continue rising, sales should maintain an upward trajectory. Furthermore, evidence is building demand could return sooner than expected to the 16 million-plus unit levels that were typical prior to the start of the global recession in 2008.

The major risks to the WardsAuto forecast are the growing debt crisis in Europe, potential deterioration in emerging-market demand or some geopolitical crisis elsewhere that causes economic calamity.

Shaky consumer confidence also could be a mitigating factor in U.S. new-vehicle demand.

Sam Kahan, president of Kahan Consulting, says Americans are wary of the situation in Europe, events in the Middle East and upcoming presidential election, and that could play a big part in whether sales continue to rebound.

He says more weight should be given to consumers’ worries that Middle East politics could result in a new war and/or disruption to oil supplies.

“The situation with Iran, although out of the headlines, can blow up at any time,” Kahan says. “Syria and other Arab countries are far from stable. It is possible that uncertainty is also weighing on people’s minds.

“If nothing significant happens, then the consumer will come back,” he adds. “If things deteriorate, then car purchases will slow accordingly.”

Despite the risks, Kahan believes U.S. sales of 14 million or higher are a good bet for this year. Assuming no supply disruptions, fuel costs should remain relatively low for the “next several months, (and) that should help encourage buying,” he says.

Certain basic fundamentals in place indicate U.S. LV demand already should be at running at a 16 million- to 17 million-unit pace.

A report by Euromonitor International, a business-intelligence provider, points to the record in number of Americans age 15 and above employed or looking for work. That swelling in the economically active population hasn’t resulted in the volume of new-vehicle sales expected, meaning there’s even more pent-up demand in the market than indicated by the flat growth in vehicle population in recent years and rising average age of vehicles on the road.

Some of that reluctance to purchase is a result of consumer aversion to taking on debt, low consumer confidence and unemployment rates that remain at levels not seen since the early 1980s, says Neil King, an automotive analyst at Euromonitor.

“U.S. consumers are now prioritizing the need to live within their means and are tending to acquire new credit only for larger, specific purchases,” says Michelle Evans, a consumer finance analyst at Euromonitor. “Unlike the housing market, car prices in the U.S. remained relatively high throughout the economic downturn.”

But current interest rates are a more positive factor, helping hold down final costs to consumers even though transaction prices have remained relatively high as a result of lean inventories and absence of sky-high incentives.

So, although credit did become tight overall, Evans says, automotive was one of the few areas in which U.S. lenders were able to expand financing activity during their slow climb out of the recession in the last two years.

Other optimistic signs for 2012 include historically high trade-in prices for used cars and the production ramp-up now under way to fill shortages of certain strong-selling vehicles.

Additionally, there are several new or redesigned high-profile models coming to the market this year, including the Cadillac ATS and XTS, Chevrolet Malibu, Dodge Dart, Ford Escape, Ford Fusion, Honda Accord, Hyundai Santa Fe, Kia Forte, Nissan Altima and Sentra and Toyota RAV-4. Together these vehicles will bring a large number of return buyers into the market and draw attention to other products on dealer lots.

Longer term, Euromonitor forecasts the economically active portion of the U.S. population will continue to rise every year through 2019, which could mean an explosion in demand if the economy picks up steam.

WardsAuto is forecasting U.S. sales to remain below the 16 million-unit level until 2018, but there is upside potential if pent-up demand bursts through the current barriers. That would take a significant upturn in the economy, however.

[email protected]