2018 U.S. auto sales expected to decline, but remain at healthy level

Sales of new cars and light trucks in the United States are expected to fall for the second consecutive year in 2018, according to a variety of analyses. These forecasts expect the market to be affected by several factors, including higher rates and a growing used vehicle inventory, but also suggest that overall sales will remain healthy.

U.S. auto sales for 2017 totaled approximately 17.2 million. This was down from a record high of 17.55 million in 2016, marking the first year-over-year decrease in sales since 2009.

The National Automobile Dealers Association, a trade organization representing franchised dealerships in the United States, announced on Dec. 1 that it expects 2018 sales to reach 16.7 million. This would be a 2.9 percent drop from 2017, but the organization said the total would still represent a "robust year."

"Every dealer in America, myself included, would be thrilled with a seasonally adjusted annualized rate of above 16 million. Because it means that, one, the market is stable, and two, that demand is still healthy," said NADA chairman Mark Scarpelli. "And both factors are true in this case. We are looking at a stable market where demand—particularly for light trucks, SUVs, and crossovers—continues to be very healthy."

The forecast of 16.8 million sales was echoed by Fitch Ratings as well as the automotive organization Edmunds. IHS Markit, a London-based analysis firm, set its 2018 forecast at 16.9 million.

Cox Automotive, which includes such resources as Kelley Blue Book and Autotrader, set its initial forecast for 2018 auto sales at 16.6 million. The group raised its forecast to 16.7 million after Congress passed a tax reform bill, with its analysts saying the legislation may allow people to consider a more expensive purchase or at least mitigate increases in monthly payments and interest rates.

Morgan Stanley suggested that a larger drop in sales is in store for 2018, expecting a decrease of 5 percent to 16.5 million sales. Analyst Adam Jonas said buyers may be less willing to purchase a new vehicle if they expect that improvements in technology, safety features, and other amenities will cause current models to quickly become outdated.

Scarpelli said other headwinds might discourage drivers from buying a new vehicle, including higher prices, longer loan terms, and rising interest rates. However, he said healthy economic factors such as low unemployment and gas prices hovering around $2.50 a gallon could help to reassure buyers.

The Edmunds forecast says the new vehicle market will also face more competition from the used market, as a record number of drivers are expected to return their vehicles at the expiration of their three-year leases. It also suggests that the share of green vehicle sales—hybrids, plug-in hybrids, and electric vehicles—will climb from 3.2 percent in 2017 to 4.4 percent in 2018.

Edmunds believes that plug-in hybrid sales will outnumber traditional hybrid sales in 2018. The forecast says sales of the Tesla Model 3 may easily surpass those of the Toyota Prius if the company's production is at full strength by May.

NADA says light trucks will likely account for nearly two-thirds of sales in 2018, while Edmunds suggests that automakers are likely to phase out some passenger car models in favor of more popular small SUVs. Longer term trends, such as the development of self-driving cars, could also have a major impact on auto sales in the year beyond 2018.

"The rise in green car sales is really just a precursor to what OEMs have in the works for the autonomous vehicles promised for 2019 and 2020," said Jessica Caldwell, executive director of industry analysis at Edmunds. "2018 will be a year of right-sizing for the present while putting some of the critical building blocks in place for the future."

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