Auto executives are a strange blend of constitutional optimists and reliable pessimists.
They have to be, because the auto industry is cyclical: rising sales are always followed, eventually, by falling sales.
After a record years for sales in the US — 17.5 million new cars and trucks rolled off dealer lights — a big topic of discussion and debate at the 2016 New York Auto Show is just how strong the next nine months will be.
There are three main camps. The first thinks that the US market hasn’t peaked and that there’s more room for sales to grow. The critical data point here is average vehicle age; in the US, it 11 years, and its never been that high before.
The second argues that the market has plateaued and that to push it higher will require amped up incentive spending, which means that the automakers will cut into their profits to hang onto market share.
The third doesn’t think sales can hold at current peak levels and will dip in 2016, but not fall below a 16-16.5-million annual pace.
The view from Honda
At a roundtable with journalists at the New York show, American Honda Motor Co. executive vice president John Mendel — he oversees Honda and its Acura luxury brand in North America — tackled questions about this issue.
He cited the catastrophic slump in US sales in 2008-09, when after setting a sales record in 2000, the market flattened for several years and then tanked as the financial crisis took hold, with sales ultimately falling to 10 million in 2009.
“People did irrational things,” he said, to provide context for his belief that a massive decline isn’t in the cards.
Mendel doesn’t think that that sales will plummet, but he does predict that the 2016 market will see 16-17 million in sales, rather than a surge above 17.5 million.
He said that sales on that order will be interpreted as stagnant, an erroneous opinion.
“I don’t think you’ll see a precipitous drop to 12 [million],” he argued. “But the shock and awe in the auto industry is the headline SALES STAGNANT.”
He quickly added, “Yeah, but at historically high rates.”
In other words, a slip from the 2015 peak or even a plateauing at 16-17 million would still be good for business and no reason to panic.
Be disciplined — or get punished
However, Mendel isn’t bullish on the automakers’ commitment to holding back on increased incentive spending.
“Show me discipline ever in this industry!” he said. “It’s never there. Everybody says, ‘We learned,’ and then six months later its a junkie right out of rehab.”
Mendel noted that Honda has traditionally not been a car maker that needs to resort to quick fixes to sustain high US sales. “We’re not growing on fleet business, we’re not growing on subprime [auto loans], were not growing on zero-per cent [financing]. We’ve never done that.”
That discipline helped Honda to stay on a more even keel in 2009. “We didn’t suffer as badly. We didn’t build plants to sell 100,000 models to Hertz. We’re not immune, but we have some internal governors. We don’t swing wildly up, and we don’t swing wildly down.”
Honda is now the number three Japanese car maket by share, behind Toyota and Nissan (Honda has usually been number two). But 2016, its stalwart Civics, Accords, and CR-V compact SUVs have been sales leaders, just as the usually are.
Acura sales have also been good, particularly with crossover SUVs, but the brand continues to be dogged by the impression that it doesn’t play in the same league as rivals Lexus, BMW, Mercedes, and increasingly Audi.
Of course, a solid market position and legendary customer loyalty don’t mean Mendel has nothing to worry about.
“I would never say we’re bulletproof,” he said. “We’re had record sales three years in a row, record sales on the Acura side, but there are still things that keep you up at night.”
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