DETROIT (Aug. 12, 2015) — Light vehicle sales in the U.S. are expected to moderately improve this year and next, according to participants at the 22nd annual Automotive Outlook Symposium in Detroit.
The Federal Reserve Bank of Chicago's annual symposium, held May 29, drew more than 75 economists and analysts from business, academia and government.
During the event, 21 participants provided a consensus outlook — predicting the U.S. economy will grow at a solid pace in 2015 and at a faster pace in 2016.
This year's economic performance has already been hampered by first-quarter conditions that included adverse weather in parts of the country, the surging value of the U.S. dollar vs. foreign currencies and shipping disruptions during a labor dispute at West Coast ports.
- This article appears in the July 31 print edition of Tire Business.
The rate of inflation is predicted to fall to 0.7 percent in 2015 and then edge up to 2.2 percent in 2016, while the unemployment rate is expected to decline to 5 percent (near its natural rate) through 2016.
While the collapse in oil prices should be generally beneficial for economic growth, the surging U.S. dollar has added some headwinds, according to the Fed. Both factors are predicted to lessen inflationary pressures this year.
The symposium said the pace of economic growth is expected to increase across many sectors of the economy:
- Car and light truck sales are projected to increase to 16.8 million units this year and to 17.1 million units in 2016.
- Oil prices are forecasted to fall to $62 per barrel by year- end and then rise to $69 per barrel by year-end of 2016.
- Industrial production is expected to slow down considerably in 2015 but then pick back up, close to its long-term trend, in 2016.
During the 23 quarters following the end of the Great Recession, the annualized rate of real gross domestic product (GDP) growth was 2.2 percent — a rate that is considered a long-term rate of growth rather than the sharp rate of economic recovery that typically follows a deep recession, according to the Fed. The growth rate of real GDP is predicted to be 2.1 percent for 2015 and 2.7 percent in 2016.
Real personal consumption expenditures also are expected to edge up slightly—by 2.6 percent this year and 2.7 percent in 2016.
While the expansion has lasted nearly six years, signs of slack still remain in the economy, according to symposium participants. But there also have been two big shocks to the U.S. economy over the past year:
- The average price of oil, which stood at $106 per barrel in June 2014, began to slide over the following months and then collapsed beginning in October, reaching $48 per barrel in January of this year. The decline in energy prices has had both positive and negative impacts on the U.S. economy, according to the symposium. On the positive side, energy users have benefitted from a substantial reduction in energy costs; on the negative side, over the past seven years as the U.S. has become a larger producer of energy, there has been a significant loss of income to the domestic energy sector.
- The value of the U.S. dollar in international exchange markets has strengthened substantially over the past year, making U.S.-made goods more expensive to foreign consumers and reducing the demand for such goods from abroad and slowing the growth of exports. It also makes foreign-made goods less expensive to U.S. consumers, thus increasing the demand for such goods in the U.S. and raising the growth of imports, according to the Fed.
Auto sector outlook
During the symposium Emily Kolinski Morris, chief economist for Ford Motor Co., predicted that 2015 automobile sales in the U.S., Canada and Mexico will either match or modestly exceed 2014 levels.
As U.S. employment and income continue to grow, more people will need vehicles to get to their jobs. Except for a handful of cities, the urban geography of the U.S. still requires most workers to drive to their places of employment, she said.
Replacement demand has been another important driver of sales growth, Ms. Kolinski Morris said, as the average age of vehicles on the road surged up during the recession and is at a record 11.5 years.
However, surveys indicated consumers are planning to hold on to their vehicles for a shorter period of time than in the past.
On the down side, a continuing weak housing market is hindering new vehicle sales growth. Since home buyers and construction firms historically account for a large portion of auto demand, new vehicle sales are expected to remain near their current level, Ms. Kolinski Morris noted.
She predicted 2015 U.S. vehicle sales (including passenger vehicles and medium/heavy-duty trucks) will range between 17 million and 17.5 million units.
Steven Szakaly, chief economist for the National Automobile Dealers Association (NADA), predicted light vehicle sales in the U.S. will increase to 16.9 million units in 2015 then decline to 16.4 million units by 2017.
He noted that new car dealers average about $62 of profit per vehicle. Since car sales are not very profitable, many dealers earn most of their money through financing and service contracts. As interest rates are due to rise over the next few years, he said dealers will be looking for other ways to earn profits.
Mr. Szakaly said he is concerned that fuel-efficiency mandates will make new vehicles unaffordable. He claimed the standards could raise the average cost of a new vehicle between $3,000 and $5,000.
Kenny Vieth, president of Americas Commercial Transportation Research Co. L.L.C., predicted a slow, gradual expansion of the trucking industry. The price of diesel fuel has declined, boosting profitability for the trucking industry.
Banks are easing lending standards, making credit more readily available, he added. However, he noted that labor issues, including driver shortages, are expected to remain a challenge for the industry.
Historically, driver shortages are strongly correlated with profits, Mr. Vieth said: When demand for trucking services rises (as implied by driver shortages), trucking firms can pass higher wage costs on to their customers.
There also is a shortage of new heavy-duty trucks available for purchase in 2015 due to production constraints among OEMs, he noted. Thus prices for hauling freight are expected to trend upward until mid-2016, when more capacity is predicted to become available.
Heavy-duty truck sales in North America are forecasted to increase to 328,700 units in 2015 from 286,200 units in 2014 and then drop to 307,000 units in 2016, Mr. Vieth said. Medium-duty truck sales are expected to increase to 218,000 units in 2015 from 212,300 units in 2014 and then to 229,300 units in 2016.
Auto parts market
David Andrea, senior vice president of the Original Equipment Suppliers Association, said that based on a bimonthly survey of its regular member firms' top executives, the outlook for equipment suppliers continues to be stable and modestly positive. The membership includes makers of tires and auto parts.
Average capacity utilization is about 80 percent among all suppliers and continues to climb upward, he said.
Suppliers reported that delivering parts on time was one of the main problems they were dealing with, he said. They are taking many approaches to addressing this issue, he said, including boosting buffer stocks, increasingly sourcing their components from multiple regions, sourcing materials or components closer to their point of use, and expediting shipments.
Suppliers also have been creating advanced simulations of supply chain disruptions to find ways to improve their delivery performance when actual disruptions do occur.
He noted that high-profile product recalls have been a persistent problem for the auto industry, suggesting that quality control for parts may be an issue.
Regulators are considering a variety of ways to reduce this problem — including new whistle-blower incentives, higher caps on civil penalties, pre-certification of compliance with regulations and standards by suppliers, and stricter reporting requirements of auto-related fatalities from original equipment manufacturers.
According to the association's composite forecast, North American car and truck production is anticipated to increase to 17.3 million units in 2015 and then grow to 18.2 million units by 2017.
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