Outlook for New Car Sales

02/05/97

The Associated Press reports that the chief economist for the National Automobile Dealers Association (NADA) predicts that the slowing economy and higher-than-expected inflation will bring about a decline in vehicles sales for the U.S. market.

In his annual report to the NADA convention, economist Tom Webb said, "I think there will be some surprises on the inflation front. Not that inflation will be bad, we'll just be surprised that it's not as good as we thought it was going to be."

Webb predicts that the U.S. market will comprise 14.7 million car and light truck sales in 1997, a drop of about 400,000 from last year's 15.1 million sales. Other analyses have projected 1997 sales at somewhere between 14.7 million and 15.1 million units.

Webb said, "in terms of unit sales, the new-vehicle market is a no-growth market. That is nothing really shocking or new _ there's consensus in the industry now on that."

Franchised dealers will see the effects of a zero-growth new car market offset by the continued expansion in used-car sales, said Webb. He also predicted that interest rates would remain stable, and that good availability of credit throughout the year would help attenuate the impact of slowing sales.

Webb said, "the economy is relatively weak. I don't think there will be any move to try to raise interest rates to slow an overheated economy. I don't think that will be the problem at all."

Last year Webb predicted only 14.5 million vehicle sales through the country's 22,700 or so franchised dealers. Webb and other analysts expected rising consumer debt and an inability to afford new cars to weaken 1996 sales, but that did not happen. Webb explained, "People kept on borrowing and the banks kept on lending"

Carmakers have continued to raise prices, and new cars and trucks now cost an average of over $20,000. The growing number of people leasing cars for monthly payments below typical payments on outright sales have hidden those rising costs, though, leading Webb to say, "we've done a very good job of not having the affordability dilemma come up and bite us again."

Banks are now indicating that they will tighten up on lending because of rising consumer debt, but they haven't done so yet. Webb said that the industry would not suffer any major setbacks, even if they start to restrict lending this year: "it's not a house of cards, it's a sustainable debt level. It's just I'm afraid consumer purchases will be held in check, more closely in line with the growth of income levels."

Webb did not predict when the next major industry downturn would happen, but he said auto sales have peaked for this economic cycle: "this is the first new-vehicle sales cycle we've gone through in the past 40 years in which the previous peak has not been surpassed."

He continued, "we are on a down climb. Most people think the market has achieved some new level of stability, and we're not going to see these tremendous peaks and valleys."

Paul Dever -- The Auto Channel