Despite uncertainty in the global economy, the U.S. auto industry continues to motor along at a steady clip.
As a result of the vigorous selling pace during the spring and summer months — the selling rate from May through August averaged 17.5 million units — LMC Automotive is raising its 2015 total light-vehicle sales forecast to 17.2 million units from 17.1 million units and its retail light-vehicle forecast to 14.1 million units from 14 million units.
In addition, analysts at Moody’s now predict sales of new cars and trucks will increase by 2.4% in 2016 after growing by 2.8% in 2015.
Moody’s also estimated the growth in 2015 and 2016 should enable domestic automakers to remain on a path toward generating healthier consolidated earnings and cash generation despite the global uncertainty in recent months
“The Federal Reserve’s decision to keep interest rates at the current level paves the way for the U.S. auto market to post strong results for the remainder of 2015, as the primary risk to volume — a rate increase — is likely pushed out to December or early 2016,” said Jeff Schuster, senior vice president of forecasting at LMC Automotive.
“Sales the previous three months have significantly exceeded expectations, so if interest rates remain low, auto sales in 2016 will get a further boost from an economy that should accelerate,” he said.
Schuster said the boom in new vehicles sales in also generating it economic momentum. North American production in August 2015 was 1.58 million units, a 9.5% increase compared with August 2014. U.S. production, with help from strong SUV demand, has accounted for 70% of the volume increase in North America. Given the strong sales pace, manufacturers were able to reduce inventory in August to a 55-day supply, down from 59 days in July 2015 and 56 days in August 2014, Schuster said.
Meanwhile, the drop in consumer optimism, a key factor in car sales, continued to narrow in late September as Americans increasingly concluded that the stock market declines had more to do with international conditions than the domestic economy, according to the University of Michigan Surveys of Consumers.
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While the September Sentiment Index was at its lowest level in 11 months, it was still higher than in any prior month since May 2007. Moreover, while upper income households recorded the largest initial declines, they also recorded the largest immediate rebound, according to U-M economist Richard Curtin, who directs the surveys.
Overall, the data continue to indicate that consumer spending will continue to expand in late 2015 and 2016, with an average gain in personal consumption expenditures of about 2.9%, Curtin said.
“Americans realize that the domestic economy has become more vulnerable to global economic trends,” Curtin said. “Consumers view the recent stock movements as symptoms of global weaknesses, rather than domestic conditions. Although most believe the domestic economy is still largely insulated, they have lowered the pace of job and wage growth that they now anticipate.
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“The true significance of these findings is not the change in their economic prospects, but that consumers now believe that global economic trends can directly influence their own job and wage prospects as well as indirectly via financial markets. While now small, the global economy influence is certain to rise in the future and prompt widespread adjustments by consumers and policymakers.”
Moody’s predicted that vehicle sales should remain relatively stable over the next year. We are maintaining a stable outlook on the global automotive manufacturing industry based on our expectations that global light vehicle sales growth will rebound modestly to 2.5% in 2016 after slowing to 1.2% in 2015, Moody’s said.
Steady growth in the U.S. and surprisingly robust sales in western Europe have helped offset a sharp sales contraction in Japan and a steep deceleration of growth in China during 2015. Growth will tick higher in 2016 as Chinese demand recovers and Japanese sales stabilize, Moody’s predicted in a recent report.
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Despite our expectations for slowing GDP growth in China, we believe looser monetary policy and the stabilizing real estate market should support a recovery in auto sales in the second half of 2015 and into 2016, Moody’s said.