By on June 12, 2017

Mountain Chevrolet GM dealer Glenwood Springs, Colorado - Image: GMAfter U.S. sales of new vehicles declined 2 percent, year-over-year, through the first five months of 2017, forecasters surveyed by Bloomberg are largely in agreement. 2017 will fall well short of 2016’s record auto industry output, sliding to 17.2 million sales from more than 17.5 million in 2016.

There are nevertheless a handful of positives on which optimistic automakers can draw. First, a 17-million-unit sales year still represents a huge number of sales for manufacturers that averaged 12.5 million sales between 2008 and 2012.

Second, the high incentive spending doesn’t appear to be growing higher. Pair that with high average transaction prices and automakers can still earn big profits.

Third, if Washington ever does get around to legislating — no sure bet in this investigative congressional age — then promised tax cuts and infrastructure programs could further elevate demand.

In the meantime, there are causes for concern.

Inventory levels, according to Automotive News, improved in May, at least as compared with April, but remain high at General Motors and for many key models across the industry. At some point, in order to clear out, for instance, a 126-day supply of Buick LaCrosse sedans or a 118-day supply of Chevrolet Silverados, pressure will have to be placed on pricing. And when prices fall, competitors are forced to compete in order to maintain market share.

Adding pressure is a forthcoming glut of pre-owned, off-lease vehicles. Part of the boom in auto sales over the last few years is attributed to the rising number of lease customers. The lease returns and other factors are, “driving a lot of uncertainty and frankly the jitters across the industry,” LMC Automotive’s senior vice president of forecasting, Jeff Schuster, told Bloomberg, “because this is the first year and the first time that we’re pulling back on demand since the recession.”

Indeed, not since 2009 has the U.S. auto industry collectively reported fewer sales than in the previous year.

And while incentive spending is relatively stable from one month to the next, automakers are undeniably spending significant sums of money to lure customers into showrooms. ALG said May 2017’s incentive spending was up 9.5 percent, to $3,435, compared with May 2016. Yet average transaction prices were up just 1 percent, year-over-year.

If auto sales do in fact fall to 17.2 million units this year, 2017 will still go down as the fourth-highest-volume year on record. Only 2000, 2015, and 2016 scored higher.

Bloomberg’s forecaster average late last year stood at 17.2 million units, but optimism surrounding GOP tax proposals conspired to increase forecasts for 2017 to 17.4 million early in President Trump’s Oval Office tenure. At Morgan Stanley, meanwhile, the predicted decline in 2017 is just the beginning. The predicted decreases the auto industry will suffer in the following three years will be more substantial.

[Image: General Motors]

Timothy Cain is a contributing analyst at The Truth About Cars and and the founder and former editor of Follow on Twitter @timcaincars.

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3 Comments on “2017 U.S. Auto Sales Forecasts Are Falling; Still Likely the Fourth-Best Year on Record...”

  • avatar

    Dealers/banks are supposedly tightening their lending standards. In the last few years, subprime borrowing/lax lending standards have certainly contributed to higher sales. I know a few people who have purchased new cars in the last 6 months. How they even remotely qualified for a loan is beyond me. I think this is going to have a bigger impact on future sales than people realize.

    • 0 avatar
      Big Al from Oz

      Yup, and there is speculation interest rates will rise 50 points this year in the US, further dampening enthusiasm.

      I believe sales will drop significantly.

  • avatar

    Either way, we have a good deal of inventory to last for a while. Buy a decent car soon and keep it for a while till we get another boom. Deals are so good right now, it makes even sense to buy new in some case (Hyundai Sonata)

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