The U.S. auto market is bouncing back, but analyst say the pace has slowed. Full recovery could be four years away.
So says a panel of experts from Cox Automotive, LMC Automotive and IHS Markit during the Center for Automotive Research’s Management Briefing Seminars.
The Good News
All three analysts note that demand has been climbing since April, in spite of lower sales incentives and rising transaction prices. They agree that the trend has continued into August in spite of “noise” that makes forecasting uncertain.
Jeff Schuster, who heads global vehicle forecasting for LMC Automotive, predicts U.S. sales will reach 13.5 million units this year. He says volumes won’t match last year’s 17.1 million total until 2025.
A similar view is reflected in analyses by Jonathan Smoke, chief economist at Cox Automotive, and Mike Wall, who heads automotive analysis for IHS Markit.
U.S. car sales revived sharply in May-June from an abysmal March-April, although the pace varied by region. Smoke attributes the surge to a combination of pent-up demand, bulging dealer inventories and sales incentives.
But by the end of July, inventories were below normal for both new and used vehicles. Sales momentum remained positive, but the pace slowed. Smoke at Cox Automotive notes that consumer sentiment, which began to perk up in May, was slipping again by mid-June.
The ratio of shoppers who plan to buy a new car within six months slipped from a peak of 22% in April to a more normal 15% by the end of last month.
IHS Markit figures sales for the full year could range anywhere from 11.6 million to 14.2 million compared with last year’s 17.1 million.
The most optimistic forecast assumes the pandemic is controlled and the American economy continues to reopen smoothly. The most bearish outlook assumes a second wave of the virus late this year, coupled with another round of broad but short-term lockdowns.
Wall says none of IHS Markit’s three options would see full-year sales climb to more than 16.6 million by 2024.
North American output of light vehicles reflects the uncertainty. A relatively bullish LMC foresees production, which totaled 16.3 million last year, rising to 16.5 million units—and a capacity utilization rate of 73%—by 2023. But Schuster cautions that the outlook assumes no delays in upcoming product launches and no additional COVID-19 outbreaks.
IHS Markit figures the region’s output will fall to 12.6 million units this year. Wall says production isn’t likely to match last year’s level for at least three more years.
All three experts say U.S. demand for sedans will continue to weaken. The pandemic, they say, is hiking consumer interest in vehicles with the greatest possible flexibility, which means SUV/crossovers and pickup trucks. Still, Smoke at Cox Automotive notes that cars gained market share in early July, proving that some buyers still prefer sedans.
Failure to Launch
All this uncertainty could continue to postpone, modify or cancel new-model production launches through 2023. Wall notes that carmakers are reviewing their portfolios for ways to extend current model runs with facelifts.
That may not be all bad. IHS Markit notes that stretching out existing product runs could act as a hedge against future market volatility.
It’s the fifth generation of a vehicle that has been increasing in sales year after year since its introduction in 1997.
Ram Truck chief exterior designer Joe Dehner talks about how they’ve developed the all-new pickup. “We’ve been building trucks for over 100 years,” he says. “Best I could come up with is that this is our 15th-generation truck.”
According to Sandor Piszar, Chevrolet truck marketing director, “We engineer and build our trucks with customers’ expectations in mind.”