October 18, 2015 — Record automotive sales the next two years? If IHS Automotive analysts are right, there will be. They do have a track record of sorts — a few years ago, as the industry was on the back end of the recession, most, if not all analysts were predicting a prolonged period of depressed auto sales. All except for the analysts at R.L. Polk, who predicted sales would rebound much faster reaching the 16 million level by 2014.
They were right.
Now, IHS Automotive, which acquired Polk in mid-2013, is predicting sales will hit 18.2 million in 2017 before beginning to slow in 2018. Next year also should be a record year with 17.8 million sales, IHS believes. Meanwhile, sales this year should come in between 17.3 million and 17.4 million.
A slight slowdown will begin in 2018, according to IHS analysts, with sales falling back to the neighborhood of 17 million by 2022. According to WardsAuto.com data, the U.S. sales record was in 17.5 million units in 2001. The last year the industry saw 17 million sales was in 2006.
Other analysts expect similar to higher growth the next couple of years. John Murphy, research analyst for Merrill Lynch Bank of America, meanwhile, is going all out predicting sales will hit 20 million in 2018. So far, he’s the only analyst calling for numbers that high. In fact, he told Detroit’s Automotive Press Association in June that 18 million may be too low.
He also foresees the industry remaining strong until the mid-2020’s at which time he predicts will be a severe correction plunging car sales to the 14 million to 15 million level. Numerous dealer executives have expressed to TBR that Murphy’s scenario is one that scares them and would prefer sales continue to go up at a moderate and sustainable pace. “If we see a huge increase, the correction will only be more severe when it comes,” says a senior executive at one of the publicly traded dealer groups.
Some analysts think the projections of 18 million to be fool’s gold. The chief economist for the National Automobile Dealers Association, Steven Szakaly, laughed when asked about Murphy’s prediction during a press conference at the NADA convention in January. He later told TBR that Murphy’s prediction was a stretch and didn’t see sales hitting 18 million by the end of the decade.
In August, Szakaly predicted sales will hit 17.4 million next year and then drop back to about 16.6 million in 2017.
Others are even less optimistic. The industry could fall to 14 million in 2017, John Hoffecker, a vice chairman withAlixPartners and head of its global automotive practice, predicted in June.
Driving the over-the-top predictions are attractive interest rates that are on average just over 4% on a 48 month loan; a massive influx of 150 new models scheduled for the next two years and a potential willingness for automakers to be aggressive with incentives as they attempt to capture marketshare.
There are hurdles, however. The average price of new vehicles continues to climb — it’s more than $27,000 now (more than $32,000 according to TrueCar.com); and the average length of a car loan is over 64 months and could go higher. Longer loans likely will take people out of the market for at least a couple of years. Another factor — the average age of a vehicle could hit 12 years soon. Meanwhile, the industry will see a record number of late model used vehicles hit the market over the next two years.
Whether the 18 million to 20 million predictions come true is anyone’s guess; but it does seem reasonable that 17.5 million to 17.8 million for the next two years is likely — and that is nothing to complain about.