Strong March sales seen, but future concerns loom

Strong March sales seen, but future concerns loom

Even as analysts predict strong March sales, notes of caution are coming from forecasts of flat auto sales nationwide in 2017, with sales for some franchises and geographic areas forecast to start dropping this year.

–Overall, auto sales figures continue to post strong results, but when you peel back just one layer beneath the surface, some worrisome trends are taking hold,” said Thomas King, vice president of Power Information Network, at the J.D. Power Automotive Summit, which kicked off the NADA Convention in Las Vegas.

Rising incentives are a particular concern, King said, noting that first quarter sales incentives averaged 9.6% of MSRP and are moving toward levels seen at the height of the recession.

–The increased spending, which is due primarily to manufacturers trying to offset a shift in demand from cars to trucks and SUVs, has the potential to reduce future resale value,” said King. If trade-in values are lower, consumers would be less able to buy new cars and off-lease vehicles would see their value drop, hurting residuals.

Manufacturers need to reduce incentives on new cars quickly and substantially, King said. Spending on cars has reached 12.3% of MSRP, well above peak recession levels, while spending on trucks has remained stable at 8.2%. That means manufacturers will have to cut production of cars.

J.D. Power sees retail auto sales growing from 14.2 million in 2015 to 14.5 million this year and 14.7 million in 2017. But the company is concerned that future problems could stem from the increase in long-term loans and leases and the decline in buyer credit scores.

An annual dealer poll by Automotive News found that dealers are more pessimistic than a year ago, with just 49 percent expecting their vehicle sales to be –better” or –much better” this year, down from 71 percent a year ago.

NADA Chief Economist Steven Szakaly said a lot depends on the presidential election, which could particularly affect employment. Thatês especially true in the Washington area. But automakers could well continue to offer heavy incentives a plus for dealers, in Szakalyês view and he is sticking with his forecast of 17.7 million light vehicles this year.