There is good news for the U.S. auto industry. According to the National Automobile Dealers Association’s (NADA) annual forecast, issued in early November, new vehicle sales in the U.S. are on track to stay above 17 million units for a third consecutive year in 2017.
Steven Szakaly, NADA’s chief economist, predicted 2017 sales of 17.1 million vehicles, down from the expected 17.4 million by the end of 2016. Basing his prediction on expected U.S. economic growth, continued low gas prices, and the fading repercussions from the surprise election of Donald J. Trump as the next U.S. president, Mr. Szakaly is confident that the U.S. auto industry will remain steady even if it no longer continues the six-year growth trend it has exhibited since the Great Recession.
“We are headed toward a stable market for U.S. auto sales, not a growing market,” he said. “The industry has achieved record sales and pent-up demand is effectively spent,” he added, referring to 2015’s sales record of 17.47 new vehicles and pent-up demand generated during the worst of the economic times of 2009 and 2010.
Mr. Szakaly also noted the potential for a second half 2017 sales surge to 17.3 or even 17.4 million vehicles if benefits from Trump’s promised deregulation hit quickly. However, industry leaders will not be able to gauge whether a surge will happen until they achieve a clearer picture of what 2017 will likely look like, which will not happen until February or March.
NADA’s projections follow those that Bank of America Merrill Lynch made back in May 2016, but fall far short of the bank’s original expectations. Bank of America Merrill Lynch’s analysis predicted that car sales would grow to 18 million by 2018, shattering all previous records. However, industry leaders have noted a plateau in car sales which began in early summer and solidified in August 2016.
For instance, in August General Motors noted a 3 percent decline in its annualized rate of sales compared to the same month in 2015. The auto industry as a whole fared even worse, suffering a 4 percent decline over August 2015. The downward trend continued into October, though GM reported only a 1.7 percent decline that month. Near-record incentives and discounts in November were unable to reverse the trend. Despite an average discount of $3,886 per new vehicle, a 15 percent increase over last November’s offered discount, retail auto sales are expected to decline by 2 percent over last November’s levels.
Nevertheless, expected economic growth in 2017 will keep sales levels away from dramatic plummets. U.S. gross domestic product is projected to grow by 2.0 percent in 2017 and 2018, up from this year’s 1.6 percent growth. Manufacturing is expected to outpace the general economy by growing by 3 percent in 2017, outperforming this year’s 2.6 percent expansion. Furthermore, the U.S. economy is expected to add between 150,000 and 180,000 new jobs per month next year. These factors all increase consumer confidence, which makes it more likely that people will spend money on a big purchase like a new vehicle.
Although new vehicle sales in 2017 will not break records, auto dealers are likely to enjoy increased sales of used vehicles. NADA expects that new-car dealers will sell 15.3 million used light vehicles in 2017, a 200,000-unit increase from expected 2016 year-end sales. Mr. Szakaly calculated that, at this rate, franchised car dealers will facilitate three out of every eight 2017 used car transactions. He expects the total number of used car transactions to hit 40 million next year.
However, used vehicle values will fall in 2017. According to Jonathan Banks, vice president of vehicle analysis and analytics at J.D. Power, larger supplies of off-lease vehicles are expected to return to dealerships next year, lowering used vehicle prices from record levels. These declines will follow the 3.7 percent decline in used vehicle value over the first 10 months of 2016.
On the other hand, though, Mr. Szakaly expects growth in the sales of light trucks, which will offset declines in soft car sales and raise the average vehicle transaction price. The key is to keep prices from rising too high so as to not disincentivize purchasing. Mr.Szakaly is also optimistic that President Trump will spur an auto industry boom by relaxing vehicle economy standards.