Economists mixed on U.S. auto sales hitting peak

Melissa Burden, and Michael Martinez

Acme — The automotive industry’s red-hot sales market cooled in July, but economists are mixed on if it’s headed toward another record year or teetering on the brink of a downturn.

Automakers sold 1.52 million new cars and trucks last month for a modest 0.7 percent gain, according to Autodata Corp. Ford Motor Co. sales fell 3 percent, General Motors Co. sales dropped 1.9 percent and Fiat Chrysler Automobiles rose 1.5 percent.

There’s still pent-up demand, especially for trucks and SUVs. And the economic trends that drove the industry’s record growth in recent years — easy credit, high consumer confidence and a stable job market — are still in place. But some say that growth is reaching a natural end after a six-year stretch.

“We just think it’s a tougher environment,” said Mark LaNeve, Ford vice president of U.S. marketing, sales and service. “My dad used to say, ‘Trees don’t grow to the sky.’ ”

Some analysts are lowering their full-year forecasts and expect smaller growth potential will lead to bigger discounts to move cars off the lot and maintain market share.

Sean McAlinden, chief economist for the Center for Automotive Research which is hosting its annual Management Briefing Seminars in Michigan, expects U.S. auto sales will set a record 17.7 million sales this year — up from a record 17.47 million in 2015. But he sees reason to be concerned about a significant slowdown that could cut sales by nearly a third in the next few years.

“Seven years of growth in auto sales is coming to an end,” he said.

“We’re resorting to price breaks and other sorts of gimmicks to keep sales at a sort of plateau.”

Ford executives on Tuesday blamed high incentives from an early July GM sales promotion for drops in some of Ford’s popular nameplates, including the Escape and Explorer. Over all, automotive research company Kelley Blue Book said sales incentives — enticements like rebates, price cuts and discounted financing — are up 12.5 percent through the first seven months of the year, and are rising faster than average transaction prices.

“The sky isn’t falling just yet, but we are on an unhealthy path,” said Alec Gutierrez, senior market analyst with KBB.

KBB lowered its full-year sales forecast to between 17.4 million to 17.8 million vehicles. At the low end, that would represent a small decline over last year’s banner numbers.

“It’s clear the industry is plateauing, as we’re now seeing signs of SUVs slowing down for several brands, while sedans continue to struggle,” KBB analyst Akshay Anand said. He said that with incentives continuing to rise faster than average transaction prices and with slowing growth, “the industry is in a tricky spot.”

GM Chief Economist Mustafa Mohatarem, though, has not pulled back on his forecast for U.S. auto sales and expects the good times to keep rolling. He said fundamentals of the U.S. economy are very strong.

“I stay on the path that this year will be a new record,” he said.

Mohatarem in June told reporters he expected U.S. light- and heavy-duty sales in 2016 would reach 18 million. When factoring out about 400,000 heavy-duty sales, GM is planning for light-vehicle sales to set a record at about 17.6 million.

July sales rose at all GM brands except for Chevrolet, which had a 5.3 percent sales dip. GM’s brands collectively had their best July retail sales performance since 2007, the company said.

The Detroit automaker has been scaling back fleet sales to focus on retail sales. It estimated that GM’s retail market share rose 1 percentage point in July to 17.9 percent, its highest mark since December 2011.

Jeff Schuster, senior vice president of forecasting with LMC Automotive, is predicting flat U.S. sales of 17.4 million this year.

“We do see some of the volatility in the stock markets ... that volatility is causing some jitters, I think, with confidence,” Schuster said.

Schuster points out that retail sales — or sales to consumers — are predicted to reach about 14 million this year, down 1.5 percent from 2015. Schuster said that would be the first decline in retail sales since the recession. Automakers are turning to more fleet sales to make up the difference.

Steven Szakaly, chief economist for the National Automobile Dealers Association, also is predicting a record year for U.S. auto sales in 2016 at 17.7 million vehicles. But he expects sales will fall to 17.1 million next year and to 16.5 million in 2019 before rebounding slightly to 16.7 million in 2020.

While many predict record sales this year, some economists are actually forecasting 2017 as the peak year. Michael Robinet, managing director for market forecasting firm IHS Markit, said sales should reach 17.5 million this year before hitting a peak 17.8 million next year. But Robinet said automakers may be forced to roll out higher incentives next year to reach that target.

“We’re actually looking for stronger volume next year,” he said.

Itay Michaeli, a Citi Research analyst, forecasts sales reaching 17.5 million for 2016 but thinks they will go higher yet.

“We believe the peak in the cycle is around 2018,” he said. “We think we have a few more years to go.”