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Bank Of America Lowers Auto Sales Expectations: Here's Why

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Bank Of America Lowers Auto Sales Expectations: Here's Why
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U.S. auto sales have cooled down this year and are higher by only 1.8 percent year-to-date as consumers are focusing on leases. As such, analysts at Bank of America are now concluding that the auto industry is "entering the top of the eighth inning."

The analysts, led by John Murphy, are now expecting total 2016 U.S. auto sales to be 17.7 million, down from a prior estimate of 18.2 million. Looking forward to 2018, U.S. auto sales are now expected to be 18 million, also marking a decrease from the prior estimate of 20 million.

"Although we are moderating our forecasts, we continue to disagree with the notion that the US cycle has already reached a peak, and expect the industry to grind higher (albeit more modestly) over the next few years," Murphy wrote. "This, in turn, should drive solid earnings and cash flow for companies in the automotive value chain, while they prepare for an eventual downturn."

Related Link: Have We Reached Peak Auto? Not Even Close

Murphy did however note that even if auto sales growth is moderating in 2016, the year-end sales tally will still exceed last year's record all-time highs. Meanwhile, automakers are focusing on improving their sales mix by focusing on higher margin trucks and pushing price, rather than pumping volume.

Murphy added that that it is "important to remember it is not all bad" news. Specifically:

    1. Car companies have been incredibly disciplined
    2. There is a capacity rationalization in North America
    3. Car companies are seeing growth in international markets
    4. Car companies are showing improved balance sheets
    5. A more flexible agreement with labor has been reached in the United States
    6. Consumers have a choice of better products

Nevertheless, a lower sales and production growth forecast prompted the analyst to lower his estimates for most of the car companies under his coverage.

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