Forecasters see 2018 sales falling below 17 million
It looks like 2018 will be the first time in four years that U.S. new-vehicle sales fall short of 17 million, though the tax reform bill that President Donald Trump signed into law last week could give the industry a boost as automakers adjust to life on the downside of the cycle.
For 2017, light-vehicle sales are on pace to come in around 17.2 million, about 2 percent less than the record set last year. That would represent the industry's first annual decline since 2009, officially ending its longest growth streak in a century.
How much further sales slide in the year ahead will depend, in part, on how aggressively automakers discount their vehicles to keep inventories manageable and showrooms busy. So far, many have been content to let volumes recede because transaction prices have more than compensated when it comes to a more important metric: profits.
But continued declines soon will start to make the companies take harder looks at the need to slow production and tempt them to beat competitors' deals.
"That period of growth that we had grown accustomed to is obviously over, and the industry is starting to rightsize," said Jessica Caldwell, executive director of industry analysis at Edmunds. "We could see a fight for market share. They're looking to keep their share, and if one company starts increasing their incentives, generally others follow."
Edmunds forecasts U.S. sales of 16.8 million in 2018. Cox Automotive last week said it projects the market to be 16.7 million, 100,000 more than it thought before the tax-reform bill was approved. Cox raised its used-vehicle forecast by 200,000 units, to 39.5 million, as a result of the changes in tax policy.
"The additional spending power that most households will have due to tax reform should result in a continued 'move up' in what consumers purchase," Jonathan Smoke, Cox Automotive's chief economist, said in a statement. "We've already seen preferences shift to crossovers away from sedans, which has corresponded with ever-increasing transaction prices in the new-vehicle market. Now with more take-home pay, more households will be able to consider more expensive vehicles such as trucks, SUVs and luxury vehicles. At a minimum, increased take-home pay will help mitigate the impact of higher interest rates on the monthly payment most households can afford."
The Edmunds and Cox forecasts mirror a projection from Toyota this month that 2018 would be in the "mid- to upper 16 million" range. The National Automobile Dealers Association projects sales of 16.7 million, which it said would still mark a great year for the industry.
Scarpelli: Sees a stable market
"Every dealer in America, myself included, would be thrilled with a seasonally adjusted annualized rate of above 16 million," said NADA Chairman Mark Scarpelli. "We are looking at a stable market where demand — particularly for light trucks, SUVs and crossovers — continues to be very healthy."
Dealerships are expected to have a record number of consumers turning in cars and trucks at the end of their lease in 2018, analysts said. But that flood of vehicles onto the used side of dealership lots could push down residual values, which in turn would mean less attractive lease deals and could encourage some shoppers to buy used instead of new.
Amid the market's overall decline, sales are expected to grow in 2018 for hybrids and plug-in vehicles. They accounted for about 3 percent of sales in 2017 and could reach 4.4 percent next year, Edmunds said. One reason for that is the Tesla Model 3, which went into production around midyear but is being built in much smaller numbers than the company had promised by now. If Model 3 output reaches full strength by May, Edmunds said, plug-in cars would likely outsell traditional hybrids such as the Toyota Prius by the end of 2018.
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