Automakers are on the cusp of a second record-breaking year for sales as dealers made an end-of-year push to empty their lots over the weekend. But even as the industry hopes to let the confetti fall on 2016, it must brace for a slowdown that analysts project will come to a head in the new year.
Many analysts anticipate a photo finish when carmakers report their annual hauls on Jan. 4, with some forecasting that 2016 will edge out the previous year’s sales of 17.5 million autos by as few as 5,000 vehicles. If those projections prove true, 2016 would mark the seventh consecutive year of rising automotive sales.
“This [streak] has been pretty much unprecedented, at least in the modern era of new vehicle sales growth,” said Karl Brauer, an analyst at Kelley Blue Book.
But even if the sector breaks sales records again, most analysts say that its run is all but done.
After so many years of sales growth, the ebb and flow of the market cycle suggests the industry is due for some contraction. What’s more, automakers may have finally exhausted the pent-up demand for new cars that went unfulfilled during the depths of the recession, when many consumers were out of work or deferring big-ticket splurges, analysts say.
Projections for this year and those immediately beyond show a decline in sales, although many expect sales will still remain strong for the foreseeable future. In short, the industry can expect to tumble, not plummet.
Signs of the difficulty ahead are already apparent. Cars spend more time on the lot before they’re sold compared with a year ago, a sign of flagging customer enthusiasm, said Jeremy Acevedo, a senior analyst at Edmunds.com. Cars sold in October and November took an average 71 days to move, data show, up from an average 63 days during the fourth quarter of 2015.
The easing demand has led some automakers to discount prices, extend financing and offer other incentives to unload their inventory more quickly. Autodata figures provided by Kelley Blue Book show that financial promotions, including rebates and discounts, averaged $3,303 across the industry through November 2016. That’s up 13.6 percent compared with the year before.
“Those numbers definitely indicate automakers are trying to stimulate demand that might be waning a little bit,” Acevedo said.
Those incentives could grow more generous as automakers tailor their sales strategy to a declining market.
Customers might find dealers more willing to slash prices in negotiations or offer lenient financing options, such as extended payback terms that lower the monthly bill. Some automakers may even lower their credit standards for lending to risky customers, analysts say, even as an increasing number of borrowers default on their auto loans.
Customers can also expect automakers to unveil sleek exterior designs and high-tech features to entice customers who may want to upgrade their older models. The Consumer Electronics Show in Las Vegas and the North American International Auto Show in Detroit, which will take place over the next two weeks, will see them trot out their latest offerings. “We’re going to see how hard each of them individually fights to increase their own numbers at the cost of someone else’s numbers. When the pie stops growing larger . . . you have to steal it from someone else’s share of the market,” Brauer said.
While record-setting years inevitably set the industry up for future disappointment, Brauer said it would be shortsighted of carmakers to grouse too loudly considering how beleaguered the US auto industry was just a few years ago.
The federal government shelled out $80 billion to save Chrysler and GM in 2009, a politically controversial move that tied Obama’s economic legacy, at least in part, to the auto sector and prompted some to question whether taxpayer money should be used to prop up private entities. The Obama administration has said since then that allowing the companies to fail would deal a massive blow to the already wounded economy.
Still, the years after the Great Recession dug a deep hole for the companies to clear. Sales of new cars and light trucks sunk to 10.4 million in 2009, and have steadily climbed to their current peak. In 2015, new-vehicle sales surpassed the previous record of 17.3 million cars, which was set in 2000.