Category: News Site

Getty Images
A man walks by new vehicles at a Queens auto dealership in New York City.

U.S. auto sales are tumbling further and further away from record highs hit just a few years ago.

Automakers are projected to sell 16.8 million passenger vehicles in 2019, a 1.1 percent decline from this year and below 17 million for the the first time since 2014, according to the National Automobile Dealers Association's annual sales forecast released Thursday. U.S. sales eclipsed 17 million in 2015 for the first time since the recession, peaking at 17.6 million vehicles sold in 2016. They've been falling ever since, and they are expected to continue that trend next year.

Higher interest rates and a bevy of new cars coming off lease stand to push more customers into the used market in 2019, said Patrick Manzi, senior economist for the trade group.

For 2018, car dealers are expected to sell 17 million vehicles, a better year than the industry had anticipated.

“This was a little bit unexpected,” Manzi said on a conference call on Thursday. “If you had asked me at the beginning of the year, I was expecting new vehicle sales to fall off more than they had. But then the new tax law was passed. The new tax law put more money in the pockets of consumers including the average new vehicle consumers. And many went out and purchased new vehicles.”

Car buyers mostly purchased light trucks, cross-over vehicles, pickups and SUVs, he said.

But with rising interest rates, dealers are growing concerned about “price creeping” that could keep some buyers out of the market, said NADA Chairman Wes Lutz, who is also president of Extreme Dodge-Chrysler-Jeep-Ram in Jackson, Michigan.

Falling incentives and rising rates could put “tremendous” pressure on consumers' monthly payments, he said, adding that interest rates remain a “wildcard.”

Average interest rates on new-vehicle financing have risen 60 to 70 basis points from 2017 through the third quarter of 2018, Manzi said. That has dramatically the cost of borrowing, he said, and he expects interest rates to continue to rise, though there has been some speculation that the frequency of rate increases may slow.

“Customers who are returning to the store this year and may have leased a car or purchased a car three to four years ago at a very low interest rate and are hoping to keep their payment roughly the same will not be able to do that, because the cost of borrowing has gone up considerably,” he said.

The other side of this of course, is that record sales over the last few years mean used car lots are stocked with robust inventories.

The other big trend is the staggering shift from passenger cars to crossovers and truck-based vehicles that has taken place over the last several years. Automakers have been scrambling to realign portfolios around the shift. Earlier this year, Ford said it will essentially stop selling traditional passenger cars in the U.S. altogether, except for its Mustang sports car.

“As someone who likes to drive sedans, I am a little concerned because there are fewer and fewer choices out there,” Lutz said. However he added that the breadth of choice in SUVs far surpasses what was available several years ago.

General Motors said in November it plans to slash production at several U.S. factories that focus on making passenger cars, such as the Chevrolet Cruze mid-size sedan. The decision has labor leaders and lawmakers in Ohio, Michigan, and Maryland up in arms.

Light trucks are on track to account for about 70 percent of all sales, with cars dropping to 30 percent, NADA said. A decade ago, car sales represented 52 percent while light trucks, including SUVs, accounted for 48 percent of all sales.

Those vehicles tend to be more profitable than sedans and passenger cars, in part because they simply cost more. Customers are willing to spend a bit more on an SUV, crossover or pickup because they feel they are getting more for their dollar in terms of space and flexibility. While these vehicles are becoming more efficient, rising gas prices have been cited by some industry analysts as a potential catalyst for at least a partial swing back into sleeker, more efficient vehicles.

But gas prices are not expected to rise enough to make consumers panic and send them flocking back to cars, Manzi said.

“We haven't seen the bottom of the car market yet,” he said.