By on June 30, 2016

dealership

After riding the sales roller coaster to dizzying, record-breaking heights, it’s only natural that consumers will bring automakers back down to reality.

This year will be a high water mark for new vehicle sales in the U.S., according to a new study by consulting firm AlixPartners (via Automotive News). Sales are forecasted to hit 17.8 million vehicles this year, but a downturn is on the way, and the industry won’t start to see a rebound until the coming decade.

The past seven years saw year-over-year growth of new vehicle sales, reaching 7.45 million units in 2015. According to AlixPartners, after this year’s projected 17.8 million tally, sales will fall to 17.5 million in 2017 and 16.6 million in 2018, reaching a trough in 2019 with just 15.2 million sales.

The firm blames the looming slump on soft used-vehicle prices, an economy that isn’t on fire (but isn’t retracting, either), and slightly higher interest rates. Already, incentive spending is up, the delinquency rate on subprime loans is growing, and leasing is becoming ever more popular. This is causing a glut of used vehicles, which puts downward pressure on new vehicle sales.

For the industry, the predicted slump means even greater competition, more focus on volume models, and probably the need for more incentives.

So, when do the really good times return for automakers? If AlixPartners’ prediction comes true, slow growth returns starting in 2020, with sales projected to rise to 15.6 million that year, and 16 million in 2021. The final year of their outlook, 2022, shows sales reaching 16.8 million.

[Image: Faris/Flickr]

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13 Comments on “After the Fall: New Vehicle Sales Predicted to Dip Next Year, Bottom Out in 2019...”


  • avatar
    CoreyDL

    That dealer has got a serious glut of 2005 Mustangs.

  • avatar
    VW16v

    If Trump becomes the leader. The dip in sales could become craters.

  • avatar
    yamahog

    I don’t buy it. We won’t really see people’s behavior changing until the used car prices become real (or the cost of financing / leasing reflects those anticipated prices).

    Here’s something to consider (lifted from Seeking Alpha):
    The average fleet age is stabilizing right around 11.5 years – it has been there for about a year now – while the design life before major breakdowns is 10 years and 150k miles. Which means cars are lasting, on average, about 15% longer than design life, and getting retired at around 172,500 miles on average.

    But here’s the key: the total miles driven in the US is at 3.16 trillion miles and rising. At an average of 172,500 life, that sets an annual required replacement rate at about 18.3 million and rising. Producing and selling less than that reduces the inventory of vehicles (new or used) available for purchase, and is thus unsustainable over time.

    Now that does not mean to suggest that the average fleet age and mileage before retirement will not continue to rise. In fact, with the flattening SAAR coming in at right around 17,5 million, it suggests that people may be squeezing out a few more miles from those old cars on average, around 180,600 miles in those 11.5 years. But this does not dramatically change the fact: the current roughly 18 million SAAR is sustainable, by necessity.

    • 0 avatar
      sportyaccordy

      I think you may be underestimating the durability of cars. Remember at the long end of the tail cars are probably 20+ years old. In my experience, contrary to popular opinion, many of those cars were nowhere near as well built or durable as cars built 20, 10, maybe even 5 years later. My 09 Civic feels like a vault compared to my 92-93 Accords. I imagine that like tires oils have come a bit of a way too, along with metallurgy… so at the minimum, with any level of competent maintenance, engines will be good to go well beyond 200K. At least the ones before the turbo craze.

      So I think as we go forward that tail end is going to go longer and longer, causing depressions all the way up the chain. Plus these manufacturers have become their own worst enemies in their mindless pursuit of volume over profitability, now dipping their toes into CPO leases, again setting a precedent that will surely depress new car prices.

      The whole house of cards depends on interest rates remaining low, which I think will be the case in the medium term. If for whatever reason credit gets expensive it will most certainly be a replay of 09, if not worse. Either way I’m thinking these projections are optimistic… we’re only up ~1% YTD and we just had a pretty brutal May. Almost half of the brands on the market are down YOY and more than half were down in May. Big players too… BMW, Toyota, Chevy, obviously VW, etc. Chicanery like demo car nonsense won’t be able to go on ad infinitum and I think 2016 is the year the BS stops.

      • 0 avatar
        yamahog

        The durability of cars is not exactly their average lifespan. A good number of cars are exported / totaled before their time is done.

        And for every Honda or Toyota or F150 sold there are a lot of vehicles sold without as much durability. Yeah, I’m sure some Fiat 500s and Ford Focii with DCTs can make it to 200k miles but I wouldn’t bet my money on the average one doing it if only out of cost effectiveness. If the DCT blows on a Ford with 150k miles on it, who is going to pay the money to put a new DCT transmission into a 150k mile Ford compact?

        • 0 avatar
          Mathias

          I think “design life” is irrelevant. Not for how cars are built, but for what happens in the real world. Given the vastly different environments cars live in, and given the decisions that can send a car to the junk yard at 10 years old — or to the shop for a $3,500 repair and then to soldier on — I believe that outside factors play a big role.

          From where I sit — mid-MI plus a couple queued-up Craigslist searches in milder climates — the used-car market is still overpriced at the < $5k end. Those include cars built in 2008 and 2009, when sales crashed, so there are not as many around.

          Overall, prices are falling to where used can make sense again, but it's still hit or miss, depending on the model.

          I think interest rates, and especially leasing rates, are a big factor in this. At the moment, the cheapest way to drive is probably a heavily subvented lease.

          As soon as interest rates start to inch up — any day now, we've been hearing for nearly a decade — used cars will become attractive again.

          And housing prices will head downwards, as they have to to keep the monthly payment steady, and who knows the ramifications that will have…

          The vast majority of people don't buy cars or houses, they buy monthly payments. It took me a long time to figure this out, but I'm convinced it's true.

          What's the point of this rant? Only to say that used-car values, and number of new cars sold in a given year, have probably more to do with outside factors than they have to do with what's happening in the automotive world.

    • 0 avatar
      Vulpine

      To a good extent, yamahog, you make a valid argument.

      To extend on that however, it seems some people are driving less and keeping their cars longer. I already have very nearly 9 years on a Jeep Wrangler Sahara, with only 77,000 miles on it or 8500 miles per year. Between my step-father and myself we have 19 years on a Ford Ranger with less than 23,000 miles on it or a mere 1200 miles per year. My wife has a ’14 Fiat 500 with now 17,000 miles on it or an average of just 5,000 miles per year. My mother has a 2004 Cadillac with only 12,000 miles on it.

      Yes, I and my family are an exception to that rule, but it is exceptions like ourselves that extend that average you mention, along with others that exceed your mileage numbers sometimes by two, three or even four times over the life of the car. Just as obviously, there are others who drive far, far more. I’m aware of a ’14 Tesla with over 150,000 miles on it… just two and a fraction years old. Cars are becoming more reliable all the time. At one time you considered yourself lucky to even reach 100K miles in one; I’ve exceeded that figure in no less than three different vehicles since 1990 though admittedly my driving as dropped off seriously over the last 6 years and one of those three was a 1973 Ford Gran Torino that only barely cracked that 100K mark… on its second engine. Technology has worked wonders towards improving the longevity of cars and trucks around the world.

      • 0 avatar
        yamahog

        Conversely you also raise some good points and thank you for sharing your perspective. It’s humbling to remember the stories we lose upon aggregating data. Sounds like you have some fun cars in your garage though!

        I wouldn’t bet the farm on my back of the envelope figuring but it’s a useful exercise when we don’t have much more detailed information to go on.

        If the result said that America only needs 5 million new cars per year, that would merit further investigation.

        At the end of the day all that matters is how long cars last and how much people use them. Eventually, you’ll release low-milage cars onto the market for bottom feeders like myself to enjoy. And we’ll use them up and move onto the next ride.

  • avatar

    The consumer is progressing towards a “mobility” not an “ownership” model.

    Modern vehicles are progressing towards a “disposability” model with the increase in technology, and upcoming self driving abilities.

    In Canada 1.9 M vehicles were sold in 2015 and it will be a slightly higher this year. That is comparable to 19 M in the US. http://www.thestrada.net/10/2016/6/21/is-it-still-canada-1-vs-us-10.html

  • avatar
    APaGttH

    Well, we are sending about 1/2 a million VWs to the shredder in a privately financed government ordered Cash for Clunkers, so we have that…

  • avatar
    Vulpine

    Honestly, I wouldn’t be surprised at a reduction in sales. How many million cars have been sold vs how many total vehicles over the past 7-year period? Granted, not everybody can afford a new car but it seems a very large percentage has purchased one recently so demand itself will need to slip a bit until the cars age enough to trigger the desire for a replacement. Such fluctuation is relatively normal for the industry even without the stigma of economic upset.

  • avatar
    Speed3

    2016 will likely be the high watermark year, however it’s hard to know what will happen afterwards.

    What we do know is that interest rates are not going to continue to go up. The markets are all predicting there will not be another rate hike this year, and after Brexit, the Fed will not be raising rates soon.

    The real question is whether the economy continues to grow in the next 18 months or whether there is a recession.

  • avatar

    with the durability and quality of cars over the last few years, how are new cars sustainable? What’s happening to all these used cars? They’re not going to the crusher in 10 years like they used to.

    Shit, I own a 29 year old, 17 year old, and 16 year old car (in addition to two 2016 models) . . . . they’re all running and driving great.

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