Fitch: Strong Performance Propels US Light Vehicle Sales Forecast
Link to Fitch Ratings' Report: Automotive Handbook (Second-Half 2015)
Higher than expected results through the year have led Fitch Ratings to raise its full-year forecast for vehicle sales to 17.2 million from 16.8 million. This assumes that the seasonally adjusted annual rate (SAAR) for the remainder of the year moderates, but the strong level so far has defied expectations, and sales in the fourth quarter could again be higher than expected.
After a slightly weaker than expected start to 2015, US industry light vehicles sales began to ramp up in March and exceeded Fitch's expectations through much of the year, peaking at 18.1 million in the month of September.
The sales performance in 2015 has been achieved without manufacturers slashing vehicle prices or dumping large numbers of vehicles into daily rental fleets. Overall, incentives have risen marginally, but this has been offset by generally higher prices, resulting in a net increase in average transaction prices. With a few exceptions (FCA US being one), manufacturers have been pulling back on sales to rental fleets, so the primary driver behind the impressive growth has been retail sales to individual customers.
The strong performance appears to have benefitted from a continuation of the favorable sales environment in the US, including easy consumer access to vehicle financing; a strengthening jobs market; some improvement in average wages; and low gasoline prices. The continuation of low gasoline prices and recently redesigned pickups and SUVs from Ford and GM sparked the market for these larger and more profitable vehicles. Even at the lower end of the market, a number of new or refreshed compact crossover utility vehicles from various manufacturers helped to support demand.
Fitch expects the factors that propelled the US market during the past five years to generally continue. However, the slowing rate of growth suggests a natural level of demand is being reached, much like the period from the late-1990s to the mid-2000s when US light vehicle sales hovered around 17 million annually, plus or minus a few hundred thousand.
Fitch expects sales growth to slow and overall sales to ultimately plateau at a relatively strong level for an extended period, even though there are no significant red flags signaling a near-term downturn. The ultimate annual sales estimate remains unclear, but Fitch believes that the 17 million to 17.5 million range is realistic. Still, investors should watch some risks and the market will remain vulnerable to economic cyclicality over the longer term.
Low interest rates clearly supported the US auto market in the post-recession period. A likely rise in interest rates over the intermediate term could place some pressure on sales volumes or, at least, transaction prices. The length of the average auto loan term has also grown to 68 months, according to Edmunds.com. At some point, loan terms will stop lengthening, which could also put some pressure on the market.
For additional information on this topic, please see our special report titled, "U.S. Automotive Handbook," which can be viewed at www.fitchratings.com
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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