NADA forecasts 17.1 million sales in 2017 and 17.4 m. in 2016

NADA forecasts 17.1 million sales in 2017 and 17.4 m. in 2016

After six years of steadily increasing sales, NADA is forecasting a sales drop from 17.4 million this year to 17.1 million in 2017 what chief economist Steven Szakaly called –a stable market, not a growing market.”

–The industry has achieved record sales, and pent-up demand is effectively spent,” Szakaly said. NADA, like other organizations, has adjusted its 2016 forecast from the spring, when it predicted sales of 17.7 million.

Still, Szakaly said the overall economic outlook for 2017 remains strong, with projected GDP growth at 2.6 percent, 150,000 to 180,000 new jobs per month, and the price for regular grade gasoline at less than $2 per gallon. In large part because of the low gas price, light truck sales will continue to grow and are expcted to account for 60 percent of 2017 sales in the U.S.

With more labor force participation, people with new jobs are likely to want to buy a new or used car, Szakaly said. Most new-car buyers make about $80,000 more than the average American worker and their wages have kept up with new car prices.

Many observers are expecting interest rates to rise in the next few months. But –even if they rise, they will rise from a historically low level, 4.8 percent,” Szakaly said. So the impact on new-car payments would be relatively small.

Szakaly sees some positive signs in the new administrationês expected actions: a change in tax policy, a boost in infrastructure spending, and a pullback in the regulatory burden. It currently looks as if those changes would be implemented before less favorable changes in immigration or free trade, he said.

Leasing is rising steadily and is now one-third of the automotive market, close to a record, Szakaly said. We will likely see a slight increase in leasing in the first half of 2017, with an accompanying residual risk.

On the used car side, the recovery of new car sales in the past few years has brought a larger pool of used cars back to the market three to five years later, said Jonathan Banks, vice president of vehicle analysis for J.D. Power. But the returning vehicle mix is not in line with what consumers want. Sixty percent of the returning vehicles are cars, and 60 percent of new-vehicle sales are trucks. An oversupply of used cars could continue to drive down prices.

Incentives could also become a problem, said Szakaly. They have been stable, but at a very high level, averaging $3,900 per unit, about 10.8 percent of MSRP. They have not been that high since 2008, during the recession. The incentives also push down used-car prices because consumers naturally expect a difference in monthly payment between new and used cars.

One result of the low used-car prices is an increase in negative equity, Szakaly said. Nearly one-third of buyers, 31 percent, are upside down in their vehicle, leaving them no equity for a down payment on a new purchase.