There's never been a better time to be in the business of
selling cars. Buoyed by
cheap gas prices, automakers set an all-time record last year, peddling more than 17.4 million cars to American consumers.
The record-breaking figure is the culmination of an unprecedented run. Following the great recession, manufacturers have enjoyed year-over-year sales increases for six consecutive years, the first time in US history they've strung together such a robust period of success. How long will the sales streak hold? Around the North American International Auto Show, executives and analysts believe the industry will wring out one more year of record sales in 2016 before the market tapers.
The National Automobile Dealers association forecasts a 2 percent increase this year, projecting that more than 17.7 million new light vehicles will be purchased or leased. That would be slower growth than the 5.9 percent increase dealers enjoyed this year over 2014. Analysts at Kelley Blue Book projected a similar increase this year, forecasting an overall market between 17.5 and 18 million units.
"We are living peak auto sales right now, and we will see one more year of that growth," said NADA chief economist Steve Szakaly, "but only because of rising incentives that will keep consumers coming into showrooms. The real worry now is whether we're starting to pull sales ahead from future years."
In 2015, automakers doled out approximately $3,000 in incentives per unit to entice buyers, according to Kelley Blue Book, though that varied widely by vehicle. Subaru had the most discipline of any carmaker, adding incentives of only 2.5 percent per unit, while Chrysler (14.5 percent) and Volkswagen (13.7 percent) increased incentives significantly over the second half of the year. The industry average of 8.5 percent "was getting close to the sort of incentives that took place at the height of the recession," said KBB senior analyst Alec Gutierrez.
Longer loans and leases also helped entice customers in 2015. Approximately 44 percent of new-car buyers took out 61-to-72-month loans and more than 41 percent financed a used car for the same duration during the third quarter of 2015, according to Experian. Leased vehicles accounted for nearly 30 percent of the new-car market.
Tom Webb, chief economist for Manheim, doesn't think that lenders have overextended themselves – at least not yet. But he foresees headwinds in 2017 and 2018, when an influx of cars coming off leases takes a bite from new-car sales and hampers the industry. Roughly 2.55 million units came off lease in 2015, but that increases by approximately a half-million vehicles per year through 2018, according to his calculations.
Overall, it's a mixed bag, Webb said. "The auto industry is in a better situation than any other segment of the economy," he said. "But the competitive situation could become somewhat destructive."
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The record-breaking figure is the culmination of an unprecedented run. Following the great recession, manufacturers have enjoyed year-over-year sales increases for six consecutive years, the first time in US history they've strung together such a robust period of success. How long will the sales streak hold? Around the North American International Auto Show, executives and analysts believe the industry will wring out one more year of record sales in 2016 before the market tapers.
The National Automobile Dealers association forecasts a 2 percent increase this year, projecting that more than 17.7 million new light vehicles will be purchased or leased. That would be slower growth than the 5.9 percent increase dealers enjoyed this year over 2014. Analysts at Kelley Blue Book projected a similar increase this year, forecasting an overall market between 17.5 and 18 million units.
"We are living peak auto sales right now, and we will see one more year of that growth," said NADA chief economist Steve Szakaly, "but only because of rising incentives that will keep consumers coming into showrooms. The real worry now is whether we're starting to pull sales ahead from future years."
In 2015, automakers doled out approximately $3,000 in incentives per unit to entice buyers, according to Kelley Blue Book, though that varied widely by vehicle. Subaru had the most discipline of any carmaker, adding incentives of only 2.5 percent per unit, while Chrysler (14.5 percent) and Volkswagen (13.7 percent) increased incentives significantly over the second half of the year. The industry average of 8.5 percent "was getting close to the sort of incentives that took place at the height of the recession," said KBB senior analyst Alec Gutierrez.
Longer loans and leases also helped entice customers in 2015. Approximately 44 percent of new-car buyers took out 61-to-72-month loans and more than 41 percent financed a used car for the same duration during the third quarter of 2015, according to Experian. Leased vehicles accounted for nearly 30 percent of the new-car market.
Tom Webb, chief economist for Manheim, doesn't think that lenders have overextended themselves – at least not yet. But he foresees headwinds in 2017 and 2018, when an influx of cars coming off leases takes a bite from new-car sales and hampers the industry. Roughly 2.55 million units came off lease in 2015, but that increases by approximately a half-million vehicles per year through 2018, according to his calculations.
Overall, it's a mixed bag, Webb said. "The auto industry is in a better situation than any other segment of the economy," he said. "But the competitive situation could become somewhat destructive."
Related Video:
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