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Analysts Slowly Raising Yellow Flags

Possibility of trade wars plants seed of doubt about auto sales.

by on Mar.30, 2018

The auto industry is expecting a strong sales year in 2018, but analysts warn a trade war could derail that.

The atmosphere around the New York International Auto Show was fizzy and upbeat with the industry firmly believing it’s heading for another strong year in 2018, but there are some caution flags flying as well.

Nariman Behravesh, chief economist for IHS Markit, told the annual Auto Forum co-sponsored by National Automotive Dealers Association and J.D. Power that the outlook for growth remains strong and stable and the industry should expect to benefit the improvements in consumer sentiment that the economy has spawned.

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However, anxiety about a trade war is perhaps the biggest worry on the horizon, added Behravesh, who said he hopes battles about trade could be avoided. “Tariffs hurt us more than they do the Chinese,” he said.

But there also pressure building that could hold back sales in the future, noted Thomas King, senior vice president of data and analytics for J.D. Power & Associates.

(Long-term outlook for U.S. auto sales — stable. Click Here for the story.)

President Donald Trump is implementing tariffs on imported steel and aluminum.

Fleet sales, including sales to rental customers and commercial customers who purchase more than a single vehicle, have been growing steadily since 204 and in the first two months accounted for more than 24% of total industry sales, according to figures compiled by J.D. Power, King said.

“The trend is noteworthy,” King said.

Part of the reason is that more individual customers have drifted into the used-car markets, looking for deals among the growing number of lightly-used vehicles coming off lease, but it also a sign that what is traditionally cyclical industry has reached another point of the industry’s sales cycle that indicates sales are likely to slow.

Sales of more expensive luxury vehicles, however, now account for a larger share of the sales across the industry, he said.

(Click Here to see more about automakers and suppliers decrying Trump tariffs.)

Automakers are also upbeat.

Johan de Nysschen, head of General Motors Cadillac Division, said Cadillac is in the middle of a broad rebuilding program but the signs from the U.S. market are encouraging. Even though unit sales declined last year revenue was up and Cadillac is attracting new, younger buyers, he said.

“2018 will be the all-time, high-water mark for the Cadillac brand,” said de Nysschen, adding that GM is fully committed to the rebuilding effort despite the cost.

“We’re off to a good start,” said Bill Fay, Toyota Motor Corp. senior vice president of Automotive Operations, who noted that Toyota was preparing to launch the fifth generation Toyota RAV4 to keep up with shifting consumer preferences.

(To see more about the potential consequences of a trade war, Click Here.)

In a subsequent interview, Fay also said that Toyota is contemplating raising its industry-wide sales forecast for 2018 to 16.9 million units from the 16.8 million units.

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