Auto sales in the US have been booming for the past few years.
Some of the upsurge has been driven by so-called “subprime” lending and by extended terms on loans, and that’s set off a bout of worry among market observers who don’t think sales can be sustained at their current near-record levels.
We might not see a year as big as 2015 when the counting is all done in 2016 — last year, sales set a new record as 17.5 million new cars and trucks rolled off dealer lots. But we’re probably going to see a year nearly as big.
“Our economists tell us that we’ll see 17.3 million,” said Andrew Stuart, CEO of TD Auto Finance. He called that a slight softening and echoed executives at numerous major automakers who have indicated that the US market has reached a sales plateau.
But it’s a plateau at historically high levels, as Ford CEO Mark Fields has often noted.
The dynamics of the current market have set off a debate about what will happen next. In previous boom periods, car makers have spent their profits by upping incentives to hold market share ahead of the predictable cyclical downturn.
But this time around, the boom followed a financial catastrophe that sent US auto sales down to 10 million in annual sales at one juncture. It’s take the better part of seven years for demand to return to “normal” levels, before moving into record territory.
So the more bullish market observers think it will be a while before sales decline steadily.
“I agree that we’re at a peak,” Stuart said. “It’s all cyclical. Yet we continue to see increases.”
He was referring to the ongoing strength of truck and SUV sales, versus passenger cars.
And in this context, he isn’t concerned about automaker misbehavior, when it comes to incentive spending — an easy way for a car company to juice sales, but at the cost of profits.
“I don’t know if I would characterise incentives as becoming an issue,” he said. “[Automakers] may put a little money against it to maintain momentum. They’re all going to dip their toe in the water.”
He noted, however, that moving products wasn’t really an issue.
“If you look at days supply of inventory, as of Aug 1, 2016 the average was 61 days. That’s not a tremendous increase.”
More days on inventory would suggest a sales slowdown, or a slackening of consumer interest in previously hot-selling vehicles. If that occurred, dealers would be pushing for higher incentives to clear their lots. But with only about a quarter remaining before 2016 is in the books, it doesn’t look like anyone will have to go there.
“The industry has learned some lessons,” Stuart said. “But remains to be seen how that will work out.”
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