Car makers will report December sales in the US early in 2016. At that point, we’ll know whether 2015 turned in a truly historic final total.
The big number is 18 million. Over the course of 2015, the US market has been running at or above that sales pace.
Some analysts are predicting that December sales will be strong, but not quite strong enough to hit the big one-eight.
Not that this is bad news.
“It’s truly remarkable that the auto industry is finishing off its best year ever just six years after the depths of the Great Recession,” said Jessica Caldwell, Director of Industry Analysis for Edmunds.com, in a statement.
Edmunds anticipates that 2015 will come in at 17.8 million. That’s notably higher that the previous record sales year, 2000, when 17.4 million new vehicles rolled off dealer lots in the USA.
Edmunds’ tally is lower than Kelley Blue Book’s, with the latter seeing an 18-million market when the counting is finished.
Given how far the market fell in the 2009-10 period, this rebound is nothing short of epic. It’s been driven by four key factors.
First, the average age of cars on the road in the US is 11 years. That’s unprecedented. People are now rapidly replacing their old cars with new ones.
Second, gas prices are low. If you don’t have to spend a big chunk of your take-home pay every month on filling up, you’re more likely to consider buying a new car and accepting the additional cost of a payment.
Third, interest rates are low and auto credit has been flowing. Additionally, auto loan terms have been stretched out beyond the traditional five years, enabling borrowers to have a lower monthly outlay.
Finally, the housing market is far stronger than it was a few years back, which means that contractors and other folks in the trades can buy a new pickup truck. Sales of these all-American vehicles are robust.
In the short term, this market looks bulletproof. Pent-up demand will eventually tap out, but that could take a few years. A modest hike in interest rates by the Fed could cool lending somewhat, but it’s actually the seven-year loans and lower monthly payments that are getting consumer into new cars and trucks. And of course the price of gas could increase, but it will, once again, be a while before motorists are confronted by $3-a-gallon hits at the pump.
However, the auto market is reliably cyclical, so these peaks levels can’t endure forever. The car makers are all aware of this. So what we’ll be keeping an eye on in 2016 is whether one or several of them start to use incentive-spending more aggressively to gain market share while times are good.
This probably isn’t a great strategy at the moment because the share numbers are pretty well solidified. It’s going to be nearly impossible for an automaker to achieve a major share gain, given the current mix of cars and trucks that consumers are buying in the US.
A GM or Ford may decide to take a risk and add capacity on the pickup and SUV side, it order to grab a bit of extra volume in an area of the business that is currently expanding at a nice clip. But all the signals that I’ve gotten from executives in Detroit suggest that this won’t happen and that the car companies are interpreting the market now as operating at a peak.
That means that if Detroit and its competitors can practice discipline, they’re less likely to endure pain when the market invariably turns south.
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