Warning signs for 2018

Industry analysts see warning signs that will lead to a sales drop in 2018, with NADA predicting sales of 16.7 million.

As they have for some time, passenger car sales continued to fall in 2017, reaching just a third of the market in December. That means two-thirds were SUVs and pickups, just before the American Automobile Association reported that 2018 started with the highest New Year’s gas prices since 2014 (see article on page 4, below). Gas prices are not expected to spike, but with the new-vehicle market so dependent on them, they are always worth watching. Compact utilities are now the biggest vehicle segment, followed by pickups, according to Kelley Blue Book.

The Fed is expected to increase interest rates two or three times in 2018, though it’s unclear what effect that will have. Edmunds analysts say the rate hike will be too modest to influence spending.  Other trends that could affect sales this year:

  • With improved quality, vehicles are lasting longer and owners don’t need to replace them as often.
  • Pent-up demand from the last recession may have finally reached capacity. The market is close to saturated, with a record 1.26 vehicles on the road for every licensed driver, Edmunds.com analyst Jessica Caldwell told the New York Times.
  • Lease returns will come back in record numbers this year, and the resulting certified pre-owned cars could negatively impact new-car sales.
  • Negative equity is growing.
  • If the Trump administration approves changes to the North American Free Trade Agreement, there could be tariffs on vehicles built in Mexico and Canada.

On the upside, the economy should remain steady. Edmunds forecasts unemployment will reach 4.4 percent, the lowest since 2000. GDP will grow at a stable rate of 2.0 to 2.5 percent. The increase in leasing will bring consumers back to market sooner.

“This year, many consumers will see their take-home pay rise because of tax reform,” said GM economist Mohatarem. “This will keep the broad economy growing, and help keep sales at very healthy levels even as the Fed increases interest rates.”

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