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2019 auto sales outlook

All good things come to pass. That saying is a bit boggled, the point is a good thing never continues forever. But nor does a bad one. Cycles, there are always cycles, and how you ride them is what counts. The U.S. auto sector rode out a nice sales cycle over the last 3 months with some brands hitting record numbers and others strengthening their position. But pundits do not expect this continue. In fact, headlines are indicating that sales are likely to drop with several factors expected to play a heavy role.

First are interest rates. Theyre on the rise and have been since October of last year. Rising interest rates generally coincide with more resistance in buying new cars. This will shift focus to the used vehicle market of which weve already seen a heavy play by AutoNation Inc., investing roughly $50 million in an online buyer and seller of used cars, Vroom Inc., to off-set impending losses on new car sales. In fact, AutoNation suffered its biggest drop in quarterly new car sales in 9 years.

The average price of a new car has hit near record levels and this is pushing a significant consumer segment out of the market. Digging into the numbers it might appear this is a bit overblown. After all, 2018 sales gains were notable, but pundits are pundits for a reason. They tend to get at the heart of a given number and astutely revealedthat automakers apparently were able to keep the sales brisk by selling an abnormal amount to rental companies. A sale is a sale, but sales to rental companies do not equate to individual consumer demand. Now, 2017 was a down year, no doubt, but 2016 had picked up and prior to that from 2010 to 2015 light vehicle sales were booming. Last year was a recovery from 2017 but not by much. All in all, it was a positive year but only by 0.3%.

Over the past three months U.S. auto deliveries have fallen at a faster rate than for all last year. President Trumps tax reduction helped support 2018 demand, but that will not figure into 2019. Toyota has gone on record of adjusting sales strategies in a year where they estimate total auto sales (from all carmakers) will hover in the high 16 million range. This is below the 17.6 million that were sold last year. Some expect the slide to get to the low 16 million range as rental fleet purchases will surely drop. But not everyone is so bearish, especially with unemployment being as low as it is coupled with cheap gas. Stock market volatility and the interest rate is what has consumers spooked for the moment. Well see where this is going come March.

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