U.S. Auto Sales Seen Falling in 2017, With Trucks Aiding Profit

  • Survey finds average estimate of 17.2 million for next year
  • ‘Still a great year,’ dealer group economist says of outlook

U.S. sales of cars and light trucks will probably fall next year by the equivalent of a single factory’s output, analysts and economists say. And they’re just fine with that.

Deliveries may drop to about 17.2 million light vehicles next year, the average of 10 analysts’ estimates in a Bloomberg survey. That would be about 1 percent to 2 percent fewer than the projections for this year’s total. As retail demand softens, the biggest automakers are trimming production, particularly of slow-selling car models.

“It’s still a great year,” Steven Szakaly, economist for the National Automobile Dealers Association, said of the outlook for 2017. “Plus-17 million is fantastic, especially when you think about the mix, which still going to be probably 60-40 in favor of light trucks,” which are more profitable than cars. He predicts 17.1 million sales, down from about 17.4 million or 17.5 million this year.

In 2015, the industry surprised analysts by setting a record of almost 17.5 million. Most analysts predicted further growth this year, but as the second half failed to match 2015’s torrid finish -- featuring an unprecedented three-month streak of a faster than 18-million annualized pace -- automakers may finish just shy of last year’s total. That would end a six-year streak of annual gains, the longest since at least 1927.

Read more: Auto sales slow as U.S. eases from peak

Rising interest rates may further crimp demand, especially for lease financing, which has grown in popularity as the industry recovered from the recession and 2009 bankruptcies of GM and Chrysler. But policies initiated by Donald Trump after he becomes president in January may spur sales, Szakaly said.

“Of course, there are questions about the new administration” and what it will do, he said in an interview. “But looking at a lot of the tax policies and the infrastructure spend and of course maybe the easing of the fuel-economy regulations: Those could be major positive tailwinds for the industry and for sales.”

On the other hand, interest rates will probably rise by at least a quarter of a percentage point, Szakaly said. Higher borrowing costs really hit consumers when paired with increasingly long loan terms. The alternative is leasing, which will likely be squeezed as well by falling prices of used vehicles, particularly car models.

Most of the 2017 estimates in the Bloomberg survey were made before Trump’s surprise win in last week’s presidential election. After selling auto stocks this year on concern that U.S. sales growth was over, investors bid up the shares of truck-heavy automakers such as Fiat Chrysler Automobiles NV last week in the wake of Trump’s election, in part because of speculation about eased fuel-economy standards.

Potential Tailwinds

Szakaly said it’s too soon to project higher total deliveries based on the outcome of the national elections, but he’ll be watching possible second-half tailwinds triggered by higher spending or income-tax cuts for affluent consumers.

“Primarily motor vehicle buyers are above-average income, they tend to make $80,000 or more a year,” he said. “Infrastructure spending always boosts pickup sales; that’s always a good sign. So these two things could combine to end the year much stronger than it begins.”

A year ago, when projecting 2016’s outlook, Szakaly anticipated further growth to 17.7 million. Like many analysts, he doubted that automakers would restrain production to maintain profit margins and he was pleased by the industry’s combined discipline.

“I was expecting incentives to go up more, so that was a surprise,” Szakaly said. “The industry has actually responded by idling facilities, and I’ll be honest with you: That has not happened in the past.”

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